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WITHIN 24 hours of the Chancellor saying he will spend his way out of recession comes the contrasting news that government borrowing for the first six months of the financial year is the highest for 60 years. The Exchequer is on course to be £60-70 billion in debt for the full year and is likely to owe more than £100 billion in the next two to three years.
Alistair Darling appears to be like someone who leaves their bank letters and statements unopened for fear of what they might contain but meanwhile he carries on running up his credit. He says that's not so. His belief is that by bringing forward necessary mammoth infrastructure construction projects he will keep the economy ticking at a faster rate than it otherwise would. Tax receipts won't drop as much, neither will unemployment and by the same token, the need for benefits will not be so great.
That front-loaded, Keynesian approach has its merits. However, the problem confronting the Chancellor is not so much the impact of his imposing building works but the scale of the downturn elsewhere in the economy. While he is flashing his credit card in the store, he's the only customer the rest of the shop is empty.
These figures only go as far as last month. Since then, the picture has worsened and is worsening all the time. They give a hint of what is to come: the Government's current receipts grew by just £1 billion to £39.2 billion but expenditure climbed by almost £2 billion to £43.6 billion. Businesses were already feeling the heat: corporation tax revenues were eight per cent lower at £1.85 billion compared with the same month last year.
Things haven't been helped by the £2.7 billion cost of resolving the 10p tax row and recent measures to help the housing market.
The second half of the Keynesian doctrine is increased taxation. That, coupled with a long-term slowdown in government expenditure, now looks unavoidable. But the problem for Mr Darling is that more tax, less spending will slow the recovery.
Like the person who finally opens the bank letters and goes to see the manager, Mr Darling's room for manoeuvre is limited. He's wriggling in the chair as the grim reality is pointed out to him. He's got no other accounts, no reserves he can suddenly magic up to extricate himself from the hole he's in.
He's there because the Government has been splashing its cash around quite freely, happily believing the words of its leader that "the days of boom and bust are over". Unfortunately, that wasn't true. We are now going to have to pay the price for recklessness on a grand scale. This government's claim to prudence is also, sadly, well and truly bust.
Reader views (1)
Cash strapped labour relies on the taxpayer.What a joke this lot are.
- Steve, London, 20/10/2008 15:26
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