We are sinking into the abyss of a new Dark Age made more sinister, and perhaps more protracted, by the lights of perverted economics
As the IMF confirmed yesterday, after a decade of Brown, Britain is the worst placed of any major economy to cope with global recession. Thanks to Brown's reckless spending and half-baked financial regulatory framework, we are now facing more pain than any other comparable country. Brilliant.
On this grim morning let's just remind ourselves about...
Brown's reckless spending habit
So far, Brown has increased public spending by about 5 percentage points of GDP. But the emphasis should be on the words "so far". Because so far, virtually all of that increase has come from budgeted spending, not from the unbudgeted increases that will flow automatically from the recession.
Public spending comprises two broad elements - budgeted and unbudgeted.
First, there's spending that's allocated to departments through the triennial Comprehensive Spending Review (CSR). That's contained in the so-called Departmental Spending Limits (DSL), the idea being that departments have to stay within their agreed limits. It's centrally budgeted spending.
The most recent DSL allocations were announced with last year's Pre-Budget Statement, and for this current year they total £361.1bn. Ten years ago, the comparable figure was £170.8bn, which means we've had a 111% increase. In real terms that's an eye-watering 63% hike. And relative to GDP, in just ten years, Brown ramped this budgeted spending from 19.6% of GDP to 25%. Utter insanity.
The second element of spending is variable year to year, even quarter to quarter. It's called Annually Managed Expenditure (AME), and includes things like social security spending and debt interest payments. Note that the term "annually managed" is grossly misleading - in reality, AME spending is driven by the entitlement of recipients, rather than a central budget which can be managed. Such entitlements include the right to Labour's vast panoply of social security benefits, and the interest on government borrowing.
Because it's uncontrolled, we have no idea how much AME will turn out to be in this recessionary, high borrowing year. Last year it was just under £250bn, and based on the most recent forecasts, BOM's guess is £270-280bn. Ten years ago it was £162bn, which means we've had something like a 70% increase - some 30% in real terms. But relative to GDP, the share has remained at around 19% - so far. The real increase is just about to hit us.
As somebody once said, any idiot can spend money, especially when it's someone else's money. And Gordo has shown himself to be an idiot of quite historic proportions.
Borrowing is now going through the roof. Because of Brown's idiocy, there is no fiscal space to cut taxes or boost spending. Indeed, even without a fiscal boost, there's a high probability that the bond markets will baulk at our future borrowing needs.
To restate the bleedin' obvious, after another decade of Labour's perverted economics, we are once again staring into the abyss.
PS Much talk this morning of pressure on the banks to pass on the 1.5% cut in Bank Rate - "we taxpayers have put all this money in so they have to do what we want - ie cut their own rates". Speaking as a prudent net saver, with a paid-off mortgage, Tyler wishes to register a strong objection. Tyler doesn't want to see a cut in loan rates if it's at the expense of savings rates. And if it's not at the expense of savings rates, then one of the key mechanisms for recapitalising the banks (ie that they can increase the spread between their borrowing and lending rates) will be closed down. Tyler suspects Brown/Darling are fully seized of the issue, and he will derive considerable gallows satisfaction from watching them wriggle and jerk on the end of the rope.