The Chancellor delivered his Autumn statement yesterday which must have been an uncomfortable thing to do. The economy is set to shrink by 11.3% this year - more than twice the shrinkage in 2009-10 when we had the financial crisis. I remember vividly Alastair Darling telling a stunned HoC that government borrowing would be £175 billion (it turned out a bit less - £152 billion). Tory MPs were aghast. Yesterday Sunak topped that with £394 billion. At the start of this century the total UK government debt was about 30% of GDP - now it's 105% - about £2 Trillion.
These are the sorts of figures you don't see in peacetime and we are fortunate that interest rates are low. If they creep higher - usually as a result of trying to inflation, itself creeping upwards) we are in serious trouble.
The FT ran an article yesterday using a report by the ONS about people's understanding or lack of it, on economic issues. It was not very reassuring. Look at this:
"On the deficit, 70 per cent identified that the UK government had one, but only 40 per cent could then explain that this meant that public expenditure exceeded tax revenues."
Given that governments have run deficits for most of my lifetime - except for a few years under Thatcher and at the very start of the Blair/Brown years after Ken Clarke had squeezed public spending - this amazes me. Government borrowing is deferred taxation, a bit like the government spending money on services for you but secretly putting the bill on your credit card.
We have been living beyond our means for years and never more so than in the last ten, well over a £trillion has been spent by government that hasn't been raised in taxation - at least not yet. That's for our kids to worry about. Terrible isn't it? Tax revenues in this country are normally in the 35-40% of GDP range - but spending this year must be in the 55-60% range - the difference, 19% confirmed by the OBR, being made up of borrowed money.
David Henig posted on Twitter:
The percentage of people in the UK, including prominent politicians, who haven't realised that increasing barriers for 50% of UK trade would have an impact, suggests we didn't need to be told a lot of people don't understand economics https://t.co/kDJYejKs5P
— David Henig (@DavidHenigUK) November 25, 2020
And this gets us to perhaps the most interesting thing about Sunak's speech yesterday. The word Brexit wasn't mentioned once and "The EU" just twice. Once in connection with replacing lost EU funding and again when he was "hopeful" of getting an FTA "based entirely on the precedent of what other countries have achieved with the EU." He must know this is entirely false, we are seeking far more.
Sunak, in public at least, appears to be one of the politicians Henig referred to as not realising that increasing barriers for 50% of the UK's external trade would have an impact. The Bank of England governor has said a no deal Brexit is going to cost "more than Covid-19" but Sunak never mentioned it. Even a trade deal isn't going to help that much.
The OBR released a mass of charts and graphs afterwards but I can hardly follow them. The most striking statement from it for me was this:
"During the first wave of infections, the UK locked down later and for longer than some of its European neighbours and experienced a deeper fall and slower recovery in economic activity."
Quite a statement by an 'independent' government body.
As for replacing EU funding, Welsh Farmers are up in arms about government funding. They were expecting £337 million and are now to receive £242 million for 2021-22, a cut of £95 million. This despite a commitment in the Tory manifesto to maintain farming incomes. I think the manifesto had a picture of Johnson on the front and his signature inside. Anybody who thought he would keep any promise is really gullible.
On the trade talks it seems the EU is finally becoming exasperated with Lord Frost and, according to Yahoo News, Barnier has told our chief negotiator that he has 48 hours to demonstrate a major shift before the EU pulls out of negotiations.
Katya Adler of the BBC tweeted:
EU comments today can be seen as sounding alarm over negotiations or/and as an attempt to publicly apply pressure on the government. U.K. sources I speak to don’t believe EU about to walk away. Neither side want to be the first to do that BUT doesn’t mean these talks will succeed https://t.co/zPxsDzE5yi
— Katya Adler (@BBCkatyaadler) November 25, 2020
An earlier tweet in the thread confirms the talks are not going well but I note she adds that UK sources don't believe the EU will walk away - perhaps not, but neither will they give us a deal that undermines the single market. And maybe the EU will shock us and say OK, let's go for no deal.
Finally, I note that Gove is already putting the blame for any border chaos onto the EU. This follows a meeting with Logistics UK - formerly the Freight Transport Association when he admitted that on 1 January not everything would be alright on the night - you can say that again. He seemed to be complaining that the EU would follow the rules and are ready to do so while we are not.
To cap that, The Road Haulage Association's CEO Richard Burnett said a planned meeting on Tuesday with Gove, which he skipped and sent Lord Agnew in his place, was a "complete shambles" and accused the peer of walking away "with no questions being answered again". This with a month to go. In a letter to Gove, Mr Burnett warned "there is insufficient time to prepare for a smooth transition, deal or not."
What a mess we are in.
The only thing that could have been worse, from my point of view, is that Brexit had been handled well, we got the easiest trade deal in history and our departure in December was widely being seen as well planned and smooth so that nobody in this country notices we've left the EU.
That ain't going to happen. It will be an excellent launch pad next year for a campaign to rejoin. Cheer up!
