The story on the nation’s finances in January was pretty stark. There was a huge cash requirement as both revenues were badly down by £9 billion, and spending was up £4 billion on previous year. Darling had, if you recall, set as his budget target for this year very similar figures to the actual figures from the previous year. Politically this was no doubt based on the calculation that the recession which had already run for over a year was bound to be ending in this financial year, and that the finances would be bound to improve during the year.
It was assumed that interest rates near to zero combined with £200 billion of quantitative easing would inevitably end the recession and enable the government to claim an improving economic situation in this year’s budget. January 2010 was the month that shocked observers with its clear evidence that revenues were still tumbling bringing the shortfall in the year to date up to close to £40 billion. Spending is the dark cloud in this.
As written previously Darling reduced his spending figure in December 2009 by £60 billion on his target. Excellent news. Spending was massively down from the projected £680 billion to £620 billion. The only problem is that he has given no indication as to which of his spending programmes had been cut, or by how much. The famous unexplained ‘accounting adjustments’ is all we are allowed to see.
All of the £100 odd billion put into British banks such as RBS, Lloyds and the Rock is off balance sheet, and yet it is still possible that the debts secured on property prices at the peak of the boom will never be paid off. There is much assumption in the supposed optimism that the banks will end up becoming solvent once more. The prices will indeed recover, but there are likely to be first further reductions in values, and then maybe twenty years before property reclaims the levels it was at in the early Noughties. The British taxpayer may have bought an asset in the longterm, but that will be the very longterm. Meantime we are very vulnerable to rises in interest rates across the globe.
No one knows how big the non-performing loans of the banks really are. I have seen estimates in the trillions.
By estimates published, even without this little minor trouble, Britain is in total currently borrowing 400% of GDP between government, corporate and private sectors. There are also the longer term unfunded state pension laibilities, and PFI payments which have to be funded for a generation at 8% per annum, which between them add over another 100% of GDP.
And yet somehow Darling, like a conjuror has discovered that his receipts in February are so good that, out of the blue, he considers that his borrowing is now so low, that he can start offering tax cuts and election sweeteners.
If cynicism was ever the correct response to the output of politicians, here is surely the historical apex of political deceit. In the midst of a very real and dangerous financial crisis, it is nothing less than criminal to be breaking faith with false information. Darling is claiming a receipts bonanza in February sufficient to make up for the near £40 billion decline in his revenues to January, and that he has cut spending by £60 billion. Neither is likely, and as he gives no details, one is forced to regard both these claims with a modicum of suspicion.
Financiers can cope with almost any setback and situation, if the borrower is always truthful. Liars on the other hand are not bankable. Their creditworthiness is nil. This is the essence of impossibility. Britain has to borrow trillions of pounds, but as our government are not be trusted, no one will want to be a lender to us once the world chooses to notice how much we have lied to them.
Osborne must bring in a new era of financial truthfulness. However bad the situation, everyone knows that only the people who admit to the themselves they have a problem, will ever deal with it. That was the trouble with Lehman Bros and is now the problem with Greece. There were just too many lies. Equally Brown and Darling, in denial of the real situation, are risking bringing down a fearful credit crisis onto Britain. That will happen once the world chooses that it is time to notice what to any objective observer, is already obvious – a severe mess of unparalelled proportions getting worse by the day.
The Times examines Goedon Brown’s problem with honesty HERE.