What the budget hid from you. Bank Losses, increased debt costs, shrinking economy

21st March 2016 / United Kingdom

At last weeks budget, Jeremy Corbyn failed to truly capitalise on the opportunity to attack George Osborne even though he did criticise the deteriorating state of the NHS under the Tories along with public health budgets, mental health budgets and adult social care. His biggest moment came though when he stated

“Earlier this month the government pushed through a £30-per-week cut to disabled ESA claimants. Last week we learned that half a million people will lose up to £150 per week due to cuts in personal independence payments. I simply ask the chancellor this: If he can finance the giveaways he has put in his budget to different sectors, why can’t he fund the need for dignity for disabled people in this country?”

Osborne, Cameron and May went positively ashen as this one comment was then to set the scene for political packs of cards to shake in the run-up to Iain Duncan-Smiths resignation. The fallout from Osborne’s attack on the most vulnerable was bound to have consequences and it did.

In the meantime, as usual, the devil is in the detail and once again George Osborne’s budget, the eighth in five years is masked by sleight of hand, misinformation and even disinformation.

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The UK national debt (total national debt) continues to increase as does the deficit (the amount annually it costs in excess of taxes and receipts to run the country). However, the deficit and therefore the national debt are actually shielded somewhat by the fog and mist of confusing economic data.

This is amply explained in one paragraph by the FT who did not mince words:

“It was not supposed to be like this. When George Osborne boasted in his November economic forecasts that his “long-term economic plan is working”, the chancellor did not anticipate having to warn in January that “anyone who thinks it’s mission accomplished with the British economy is making a grave mistake”.

The Office for Budget Responsibility (OBR) and therefore the Chancellor, almost always overstate national economic performance to such an extent that in the last 50 years only 23 percent of quarterly projections have been correct, the balance entirely revised downwards. They range anywhere from the encouraging to the dire – this time aligned to the latter, as the FT went on to explain:

“After revising down the estimate of economywide inflation to the lowest level since 1960, the official statisticians said nominal gross domestic product — the absolute value of all goods and services produced in Britain — was growing at a rate 1.3 per cent lower than previously thought. By February, the ONS reckoned the nominal size of the UK economy in 2015 was £1,864bn, some £18bn less than the official OBR forecasts made only three months earlier.”

To fill the surging black hole of spiralling public indebtedness, Chancellor of the Exchequer, George Osborne is now pillaging state assets, built up over generations, to buy some time in the hope that his self proclaimed ‘economic miracle’ doesn’t evaporate, which clearly it is.

As truepublca reported some months ago, by the end of this year alone, Osborne will have sold £60 billion of state assets and by the end of this parliament (in 2020) that total will have reached a staggering £100 billion, not including buildings or land (unpublished by the government) – more than Thatcher, Major, Blair and Brown combined. And 2015 saw the largest sale of state assets in a single year ever.

The accelerated privatisation programme has so far even included the national blood plasma supplier, foresentic services, ambulance and fire equipment services (to name a handful) and they are to be joined by the sale of Air Traffic Control, the Met Office, Ordinance Survey, Nuclear fuel processor Urenco, Land Registry, Channel 4, The Royal Mint, the list goes on.

The government more widely have been very quiet about the sheer scale of the selling of state owned assets as the nation’s debt is much lower than it would be if nothing had been sold at all.

Also entombed within the budget statement was another embarrassing figure Mr Osborne would rather you were not aware of.

Losses on the taxpayer stake in the utterly disastrous RBS bank is much worse than forecasted. The OBR has silently revised up its forecast for losses in it to an estimated £22bn. RBS lost £46 billion on it’s own, then was bailed out for the same again, lost that over each and every quarter since the start of its financial implosion and additional losses to the taxpayer will inevitably be about half of the bail-out again.

Unlike the sale of the Post Office where the taxpayer lost out because shares were priced too low, this time the taxpayer loses out because shares were acquired at a price now trading at barely 50% of what was paid for them.

The treasury even said last year that the taxpayer would get a windfall of nearly £15 billion on the bail-outs as a result of selling its stake. But nowhere does Osborne announce that the cost of funding these gargantuan bank bailouts has now reached £18 billion.

It didn’t help that the ONS also failed in it’s manufacturing figures. Manufacturing output is now 6.1 per cent below the level that it had reached when at peak confirming that focus by the government in this critical area of economic activity which has been diverted to financial services has failed.

This negligent and foolhardy approach to shoring up the nation’s finances is making everyone much poorer, especially future generations. Osborne is backing up his statements on meeting (missed) self imposed targets on deficit reduction by predominantly making the worst off in society shoulder the burden of reckless policies and then selling the nation’s future to the highest bidder.

Many of the asset sales in Britain actually contribute to the treasury, but once sold, the national income will decline after the one-off revenue hit by private corporations, who, more often than not, do not pay the full market price of the asset in the first place. Not investing in manufacturing is a self inflicted wound. Focusing on enhancing the systemically failed financial services industry is suicidal.

To give some perspective, the National Debt began the 20th century at about 30 percent of GDP. It jumped to above 150 percent in World War I and breached 200 percent during World War II. Both of these events were extreme to say the least. Debt then declined to 50 percent of GDP by the 1970s and dipped to 25 percent by 1990. The National Debt began a rapid increase in the aftermath of the worldwide financial crisis of 2008 triggered and then accelerated domestically by the likes of rapacious organisations such as RBS.

Graham Vanbergen – truepublica.org.uk

 



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