Credit crunch budget
This is the credit crunch budget.
We are all feeling the impact of the accumulating losses of banks and financial institutions from their unwise lending of the past few years – and their growing reluctance to lend as much to us as they were doing or as cheaply as they had been doing.
And if we feel poorer and more constrained in our spending, so too does the Chancellor, Alistair Darling.
His receipts from taxation come under pressure.
Yesterday I described how revenues from stamp duty and capital gains tax suffer as a result of the credit crunch-induced softening in the housing market and the stock market.
But there is even likely to be a VAT squeeze.
Why? Well, the rise in energy prices means we’ll spend more on fuel – which incurs a low VAT rate – and rather less on those items that are taxed at the full VAT rate.
What’s more, in a slow down, we tend to spend relatively more on shop-bought, no-VAT food, in preference to eating out in VATable restaurants.
So the chancellor will receive less in tax revenues than he hoped only last October.
But although he’ll put up taxes to make good those losses and prevent a severe deterioration in the public finances, it would be very dangerous for those tax-increases to bite in the coming financial year – when the confidence of businesses and consumers is likely to remain fragile.
I therefore expect the Treasury to let public borrowing to take the strain of lower revenues next year.
So the first big question for me will be: how much will public sector borrowing rise next year from the forecast made last October of £36bn?
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What bank/financial institution has made a loss? You're first paragraph is utter nonsense!
Kevin Ballard @ 12.50pm
To be fair to Peston, he doesn't say they made a loss but that they have 'accumulated losses' i.e. They've not been able to fill up the trough as much as they have done!
@Kevin Ballard
erm... Citi, Merrill Lynch, various hedge funds in meltdown, etc...
Dear Robert,
Thank you very much for your brilliant explanations on your website of the present financial crisis. If only you would have elocution lessons to take the vertigo out of your voice I could enjoy listening to your excellent analyses on the wireless as well...
Best wishes,
Peter
The economic "miracle" of the last decade (good economic growth with low inflation) was all an illusion: the "growth" was funded by huge increases in borrowing, both private and public. Imagine just how little growth - if any - we would have seen if the Government had been prudent and adopted tax and spending policies that achieved a budget surplus instead of continuously increasing the budget deficit.
Now we find ourselves in the situation where the financial institutions are extremely reluctant to proffer even more credit to the over-indebted UK population, so private debt will no longer fund the country's economic growth. Instead, the Government intend to increase further the public debt mountain in the vain belief that they really are miracle-workers.
It was only 30 years ago that Labour destroyed this country's economy. And now New Labour look set to do it all over again. Congratulations to all of you who gave them the three consecutive election victories that allowed this to happen.