Brown needs all the reserves of credit he built up earlier in the New
Labour government from 1997 to ride out the present turn in the economic cycle.
Earlier he repeatedly paid off the national debt at the expense of funding
public services. This left the government under pressure after its
reelection that despite its promises it had failed to deliver improvements
in the welfare state.
During the current trough in the capitalist business cycle Brown has
consciously allowed state spending to rise which has kept consumer and
business confidence high, and unemployment relatively low, and the economy
in circulation.
He is now in danger of coming unstuck although the ratio of government
expenditure to debt in the UK is significantly less than in some parts of
Europe. Brown will have to argue like other central governments, including
the USA, that the rigid monetarist restrictions of 90's are not realistic
and that some countercyclical or Keynesian expenditure is reasonable.
However if the advanced finance capitalist economies all move in this
direction, as they appear to be, a marxist view of the world economy
suggests that there is a zero-sum game. Loose expenditure in the advanced
capitalist countries will only be sustainable if real exchange value
continues to be transferred from the rest of the world to them. Otherwise
they face stagnation, or worse.
Chris Burford
London
Below free lead article on the FT UK edition front page this morning.
http://newhttp://news.ft.com/home/uk/
UK budget deficit hits �12.4bn By Scheherazade Daneshkhu, Economics
Correspondent Published: October 18 2002 21:54 |
Stagnating tax revenues and a surge in government spending pushed Britain's
public finances into the red by �12.4bn in the first six months of the year
- more than Gordon Brown's forecast of �11bn for the whole year.
The chancellor, who prides himself on having ensured the health of
Britain's public finances over the past five years, is likely to have to
increase his forecasts for borrowing in next month's pre-Budget report.
He is also likely to have to lower his expectations for economic growth
following the recent deterioration in the world economic outlook in the
preview of next spring's Budget.
The Treasury had been expecting corporation tax and income tax receipts to
rise this year by 2.5 per cent and 4.7 per cent respectively. But this
year's stock market falls have hit corporate profits and stamp duty on
share transactions, as well as incomes of some top-rate taxpayers and
capital gains tax.
"The entire deterioration expected by the chancellor during the whole of
the current fiscal year has already materialised," said Ciar�n Barr,
economist at Deutsche Bank. The worsening public finances triggered fears
that taxes might have to rise beyond next year's planned increase in
national insurance contributions.
John Hawksworth, economist at PwC, the professional services firm, doubted
a rise was necessary next year but said "further tax increases may be
needed in the longer term if the momentum of public spending growth is to
be sustained".
The Treasury said: "The chancellor has made clear that he cannot be
isolated regarding what's happening in the real economy."
Public sector net borrowing of �5.2bn in September was �1bn worse than
expectations, according to Office for National Statistics' figures
published on Friday. Government spending rose 14 per cent compared with
September last year, while receipts were up only fractionally by 0.4 per
cent at �28.9bn.
Michael Saunders, economist at Citibank, raised his forecast for the Budget
deficit this year from �16bn-17bn to �20bn, against the Treasury's �11bn.
"The scale of the deterioration in April-September makes it virtually
inevitable that the chancellor will revise up his full-year fiscal deficit
for 2002-2003 . . . it is hard to see how he can revise [it] up by less
than �5bn," he said.
In the first six months of the financial year from April, government
spending rose by 8 per cent compared to the same period last year, against
a Budget forecast of 5.8 per cent for the whole year. Current expenditure,
excluding interest paid and net social benefits, was higher - at 12 per cent.
Receipts rose 2.1 per cent but this masked a 3.9 per cent fall in
corporation tax and a 0.2 per cent drop in income tax on a cash basis.
Germany will break Brussels' rules on state borrowing for a second straight
year unless its plans to cut �11.6bn from its budget deficit succeed, say
leaked European Commission predictions.
The forecasts show how Germany is being forced to tighten fiscal policy by
EU rules, even though many economists are warning it faces the threat of
deflation.
