Coalition’s Financial Plans Are Ludicrously Optimistic.

From John Redwood today –
In the government Budget Red Book we learn that the public sector net borrowing requirement was £154.7 billion in 2009-10. This falls to £37 billion by 2014-15 on the government’s plans. Over that time period tax revenue rises by £176 billion and total public spending by £68 billion (currrent spending plus £92 billion, capital spending minus £24 billion). Calculated crudely, tax increases account for practically all the deficit reduction.

The Treasury scores it differently. Presumably they count reductions in the rate of growth in spending as contributions to deficit reduction. On their figures in 2010-11 tax increases account for 41% of the deficit reduction and in 2011-12 for 43%. 
The problem with these plans of the coalition is that they are based on increasing tax revenues, not merely the rates charged but the amount that will be collected.  Yet tax revenues have tumbled from over GBP 600 billion at April 2008, to under GBP 500 billion in April 2009, and probably under GBP 450 billion by April 2010.  The figures went very cloudy all of a sudden at the end of 2009, with the Treasury Spending Outturn Figures went somewhat opaque, and the revenue figures got muddled up with Darling’s election time requirements to claim an improving picture.
How does the coalition think that tax revenues will suddenly climb back up to where they were in 2008, which is what they are saying will happen, unless the economy puts in some serious growth?  All the signs are that growth is ebbing .  Even if the double dip doesn’t happen, growth could be anaemic for two or three years yet.  In the USA consumers are still unwilling to spend.  Jobs have not recovered, and money supply is falling, despite quantitative easing from the Fed.    Europe’s economy has some horror stories yet to come out from her banks and from countries like Ireland which are moving ever closer to default.  The collapse in the money supply could be brutal when the crunch comes.
Any sane observer would say that the coalition’s forecasts assuming a 30-40% increase in government tax revenues in these circumstances is living in dreamland.   The cuts are said to be coming in at 25% in all departments apart from health and education and overseas aid, but these are cuts in the growth rate, as much as real cuts which actually reduce the amount being spent.    What happens if instead of rising as projected, tax revenues continue to fall?  They could yet see a figure below GBP 400 billion, and head back to the GBP 350 billion where they were in 1997 when Labour came to power, and let loose all the controls.  How can we, in these circumstances, have a spending plan which allows for GBP 650 billion to be sprayed around the public sector, and that’s without allowing for any more money which might be required for bank bailouts?
We could be looking at a GBP 300 billion shortfall between revenues and spending, if the double dip kicks in, or over 20% of GDP.   Further bank bailouts would no doubt also be needed in another tumble in asset prices, which would accompany a second dip.  Somehow I think the financial reality has yet to hit home at Westminster. John Redwood as usual is sniffing around the issue, and he smells a rat, but his loyalty prevents him from saying what he must know to be true.

The Coalition will be hit by a far worse financial crisis than the first one.  Westminster and the elites are almost living in denial now, claiming the depression has been averted by their swift actions taken to suppress its effects.  Yet in the real world, where ordinary people live, the truth of the current crisis is lived with every day.  The crisis is only just getting going.  When the tsunami strikes, politics will be sent reeling in all directions.

UKIP should prepare its attacks, and its demands for a withdrawal from the EU, an association we can no longer afford.  Employers should demand an end to the minimum wage which is ruining the employment prospects of millions.  Regulatory requirements must be destroyed and burned.  People must be set free and given a chance to fight back against the coming crisis which will demonstrate the unaffordability of government, which will have to be halved in size, to match the disappearing revenues.  The weeks since the election have merely been the quiet before the coming storm.

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