Blog 2023 Malcolm Blair-Robinson

There have been some disturbing recent figures, ignored by the markets and lost in the snow. None of these is in itself a cause for undue anxiety, given that the  economic times are anxious anyway, but taken together they could be a portent of something nasty.

The first is that unemployment has started to rise. This means that benefits will be likely to rise also. Next, tax revenues have dropped rather unexpectedly. Third, government borrowing reached an all time record for the last published month. Fourth Inflation continues up. Fifth the Eurozone has not yet come up with a convincing plan of how to run its currency. All this may not add up to anything in the end, or it could be the signal that things will not work out as hoped. We shall have to see, but if this were an airliner in flight, the seat belt light would go on. Just as a precaution.

We are dealing with a skewed economy which has bet all on financial services for years, which now are financially unstable, propped up with money borrowed from the taxpayer, who in turn had borrowed it to lend. Not only does this place a millstone round the neck of future growth, but it requires huge economies of spending in order to prevent borrowing running amok.

Unhappily it does not end there. The nature of this financial services economy is that it sucks money from those who do not have it, to those who already have lots. This means that the government has to step in to help people caught in a trap of debt, unemployment, or in the case of housing benefit in some areas, the inflated cost of a roof.  Perfectly respectable people, working hard in vital jobs have to borrow in order to live, so the poor become poorer fiscally, even if notional assets make them appear well off. The ones who gain are on the mega salaries and bonuses, who can pay cash for everything, but these earnings are far too often paid either directly or indirectly by the mass of the less well off taxpayers. In the long run this is socially unsustainable.

Beneath this rages the debate whether to cut fast or slow. Cut too fast and you push up benefit costs and cut tax revenue;  cut too slow and a debt mountain will build up and become unmanageable. To some extend both arguments are valid. We may even have reached the position where both are equally and simultaneously true. In other words cut slow or fast makes no difference; we are heading for a crisis because we have long passed the tipping point.

The Coalition has had a good beginning. Now it is in political difficulties to the extent that the fault lines known to every Westminster gossip, are now clear to us all. In many ways the reverse of the obvious may be true. The Lib Dems may have grown in strength now that the curtain has been pulled, Vince may be weaker in the government, but stronger in the country. Clearly many of his colleagues are revealed to have similar sentiments.

Thus a shaken government, with its mask down, enters the New Year with both political and economic challenges on a scale without modern precedent. Nobody can reliably predict what will happen. The mix is made more toxic by another  dimension. Certain Liberal Democrats do not trust the Prime minister. Since the Iraq Dossier, the expenses scandal and Wkileaks, the country does not trust any politician, government or opposition. After the Telegraph sting, politicans cannot trust the bona fides of their constituents. If things get tough these could become not just  observations, but  serious hindrance to governance. The consequences of that will be far reaching. Let us hope we can fly round these hazards and turn the seat belt warning off.  Already we are off course and do not know where we will land. We do not want  where to become if.

This entry was posted on Thursday, December 23rd, 2010 at 4:03 pm and is filed under Malcolm Blair Robinson. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.