Alistair Darling's UK Election Give Away Budget Crippled by Debt and Liabilities

The Race is on, How Far Can Labour Boost the UK Economy Before it Goes Bust?

On Wednesday Alistair Darling had hoped he could implement the next phase of Britain's debt fuelled economic recovery in advance of the May 2010 General Election. Unfortunately time is not on the Chancellors side as the exploding debt mountain far beyond the levels estimated by the Chancellor of a year ago (as illustrated below) has now crippled the Chancellors options in delivering a further big stimulus bounce into the General Election, as further reckless behaviour will likely send foreign investors rushing for the exit out of sterling assets.

Both Alistair Darling and Gordon Brown have made many noises during the past few weeks of cutting Britians budget deficit, including most recently announcing the intention of introducing a bankster's bonuses tax.

However tomorrow we will find out if they Labour government will continue the forecast behaviour of May 2009, that the Labour party had embarked upon a programme of bankrupting Britain into a May 2010 general election so as to deliver the Conservative Party a scorched earth economy. So far every action the Labour government has taken rather than talked about doing has supported this outcome.

Therefore given the track record we can expect very little by ways of actually attempting to get a grip on the countries dire fiscal position.

Pre-Budget Report Analysis of Possibilities

Public spending cuts - Nothing of any significance as the public sector workers are traditional Labour voters, in fact we may even see a net increase in spending. Though he may target the quango's.

- Nothing of any significance as the public sector workers are traditional Labour voters, in fact we may even see a net increase in spending. Though he may target the quango's. Tax on bankster bonuses - A good vote winner would be a 50% tax on bankster bonuses. Though will probably raise less than £1 billion which is Insignificant in terms of filling the £200 billion annual gap left from bailing out the bankrupt banks.

- A good vote winner would be a 50% tax on bankster bonuses. Though will probably raise less than £1 billion which is Insignificant in terms of filling the £200 billion annual gap left from bailing out the bankrupt banks. Tax Rises - Higher rate tax rises and NI stealth rise to hit after next election, there is No choice, we will eventually see 50% (40%) Top and 30% Basic rate (20%) soon, the budget may introduce a 45% (40%) top rate as a stepping stone. Already tax hikes are scheduled to hit hard those in gross earnings bands of £100k and £150k - Personal allowances are gone and a 45% tax rate on 150k+ income.

- Higher rate tax rises and NI stealth rise to hit after next election, there is No choice, we will eventually see 50% (40%) Top and 30% Basic rate (20%) soon, the budget may introduce a 45% (40%) top rate as a stepping stone. - Personal allowances are gone and a 45% tax rate on 150k+ income. Allowance Freezes - Personal, capital gains and Inheritance tax allowances are expected to be frozen.

- Personal, capital gains and Inheritance tax allowances are expected to be frozen. VAT - Is already going up to 17.5% from 1st of Jan. It will hit at least 20% the announcement of which will be delayed until after the next election.

Is already going up to 17.5% from 1st of Jan. It will hit at least 20% the announcement of which will be delayed until after the next election. Debt - The Chancellor will probably estimate borrowing for the currently tax year up from £175 billion to £190 billion, a year ago he estimated it would be just £38 billion!

In summary

The poor and working class will be bought off and relieved.

The higher rate tax payers will be fuming and thinking of emigrating.

The Bankster's will think of new ways to dodge paying their fair share of tax with representatives of the British Bankers Association doing the rounds on TV news channels with hankies out crying poverty.

Debt Fuelled Economic Recovery Heading for Double Dip Recession

The UK economy remains on track to bounce back into the 2010 election, as indicated by June's in depth analysis, however this economic recovery is based purely on debt as shown by the graph below, as the Labour government's strategy is to deliver the next Conservative government a scorched earth economy.

Alistair Darling's forecast for government net borrowing for 2009 and 2010 in November 2008 totaled just £70 billion. However, since the amount of projected borrowing has mushroomed to £350 billion, which is set against my November forecast of £405 billion for 2009 and 2010 alone, with continuing subsequent large budget deficits thereafter of well above £100 billion a year.

Whilst many economists were surprised by Alistair Darling's April forecast that the UK Economy would grow by 1.25% in 2010 and 3.5% in 2011. However we need to consider the following in that 1.25% growth on the annual GDP of £1.2 trillion equates to growth of just £15 billion and for 2011; 3.5% growth equates to just £42 billion. Therefore the government is borrowing a net £175 billion for 2009 and £175 billion for 2010 to generate £15 billion of growth, and then a further £140 billion for 2011 for £42 billion of growth. Thus total net borrowing of £490 billion to grow the economy by just £67 billion, (£595 billion my forecast) which shows the magnitude of the scorched earth economic policy now implemented that literally aims to hand the next Conservative government a bankrupted economy that will be lumbered with the consequences of continuing huge budget deficits and therefore necessary deep cuts in public spending.

Whilst the OECD and other mainstream organisations / press have been busy in recent months revising their economic forecasts, my forecast remains as is and continues to project towards post general election tax hikes and deep public spending cuts that will in my opinion triggeras illustrated by the graph below.

Bankrupting Britain Debt and Liabilities

The total liabilities as a consequence of bailing out the bankrupt banks and debt fuelled economic recovery remains on target of £4.75 trillion by the end of 2013/14, which confirms that Britain remains firmly on the path of a probable decade of economic stagnation coupled with high inflation i.e. stagflation.

For more on my inflationary mega-trend ensure your subscribed to my always free newsletter, especially as I converge towards including major forecasts for all key markets for 2010. I.e. what will become of the stocks stealth bull market that has soared during 2009 ? What about the debt fuelled UK housing market and economic bounce.

Source: http://www.marketoracle.co.uk/Article15662.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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