No Glory, No Hope
Alistair Darling told Parliament yesterday that the UK is on the path to national bankruptcy. Largely as a result of prolonged mismanagement by the current government, in power since 1997, and aided and abetted by a profligate public whose irresponsibility and short-sightedness equaled those of its leaders, the British economy is in the most dire straits and at its centre is a black hole – the government’s budget.
The Chancellor of the Exchequer of Her Majesty’s Treasury (HMT) did not, of course, use those precise words in his speech presenting the budget for the 2009-10 fiscal year. He merely said that the Treasury’s estimate of GDP growth this year was now minus 3.25-3.75% — fully 2.5 percentage points less than in his budget review presented last November. For next year, he expects a return to positive growth, of 1-1.5%. This is also a reduction (of half a percent) from his previous forecast, but it is still higher than independent economists were predicting before he stood up to speak. After he sat down, they probably began reducing their forecasts further.
After all, if Darling’s 2010 forecast was mildly optimistic, his projections for growth from 2011 onwards were way beyond the far side of the rainbow. The Treasury would have us believe that the UK economy will race ahead at rates of 3.5-4% per annum in 2011-2013 – well above its long-term average (stretching back to 1980) and more even than its turbo-charged performance in the recent boom years. That boom was fed by massive credit creation and consumer extravagance, as well as low taxes and rising house prices – features that are unlikely to characterise the British economy in the foreseeable future.
Why not? Well, for a start, because the government’s deficit this year will reach the unprecedented (in peacetime) level of 12.4% of GDP – or four times the maximum acceptable level for well-run economies. Also, because that mind-boggling level will hardly drop in the following year or, indeed, in any of the years forecasted out to 2013. Some three-quarters of this mega-deficit, by the Treasury’s own admission, is structural rather than cyclical, so that even if growth returns and reaches the implausibly high levels envisaged by HMT, it will not disappear. It has to be dealt with — by cutting government expenditure or raising taxes, or both. But the only tax rises announced in this budget were on the ‘rich’, those earning upwards of 100,000 pounds – and they won’t take effect until next year. The bill will eventually be presented to the British public, although this government is unlikely to be the one to do so. One of the messages delivered between the lines was that the heavy lifting to restore fiscal discipline will await the next elections, which must be held by June 2010.
In the meantime, the Chancellor informed a gobsmacked bond market, the next fiscal year’s deficit will total 175 billion pounds – an amount that not merely exceeded the most pessimistic forecasts, but left them far, far behind. To fill this hole (as well as cover redemptions of existing debt, etc.) HMT will have to issue 220 billion pounds-worth of bonds this coming year, drowning the market in new paper and putting heavy pressure on gilts, and on sterling.
To overcome a socio-economic crisis of this magnitude, a country needs first to admit that it has done some very stupid things to get into such a mess, and then it requires determination and a willingness to make sacrifices, over several years, to get its act together again. It is a tough task but, given social cohesion and a spirit of unity, with charismatic and committed leadership, it can be done, There are countries that have overcome similar, or worse, domestic challenges.
But Britain in the 21st century is not such a country. It is hollowed-out, devoid of a sense of national identity, let alone purpose. Crumbling is the key word to describe the country, from its physical infrastructure to its social and cultural fabric. Thus, when unemployment marches well into double figures; when the welfare system, faced with the need to make large budget cuts, collapses under the weight of its own inefficiencies; when radical Islamists extract from the callow Establishment their own autonomous areas, geographic, legal, religious and cultural; then, tragically but inevitably, the United Kingdom will slide into social chaos and financial bankruptcy — thereby capping its moral bankruptcy, of which Britain’s status as Europe’s most anti-Semitic country is but one symptom.