Blain’s Morning Porridge – 17th Nov 2022 – UK Budget Day. Where’s the Money? Has the UK been investing in Crypto Exchanges?
“I’m afraid there is no money left…”
This morning: The UK is about to commit Economic Suicide – Austerity spending into the teeth of a raging (but short-term) inflation gale, and looming recession. Today will cost the UK future growth, loss of soft power and influence, and leave the nation further deflated, broken and ultimately divided. But political and economic incompetence leaves few alternatives.
Let’s not sugar coat it. Sometimes you just have to tell it like it is… Today is going to be a bad day…. a very bad day, particularly if you are British.
Cheer up. We’ve been having bad days for Millenia. From the arrow in the eye at Hastings, mislaying the crown jewels in the Wash, losing a king’s head outside the Banqueting Hall, the list is endless. We’ve turned defeats, like Dunkirk, into a national virtue. We relish in disaster! We are world class when it comes to getting it badly wrong. That’s why we are so relaxed about failure… we are experts at the stiff upper lip and getting on with it.
But today’s moment of outright stupid, unnecessary, budget dumbf**kery is going to be really speshul. This will be yet another self-inflicted shot-gun blast to the head… Stand by… Pull the trigger….. BANG. Ouch. The consequences of today’s spending cuts across the most vulnerable in the UK are going to be immense.
A £55 bln hole in the national accounts? Did one of our previous Chancellors invest all the money in a Crypto Derivatives exchange? That’s what feels like! With the energy price windfall what it is these days, £55 bln is about a whole quarters profit for a UK energy supplier.
At 11.30 am Chancellor of the Exchequer Jeremy Hunt will stand up in Parliament and read out a statement of National Economic Suicide. He will explain his Austerity Budget is the only cure for Britain’s profligacy, the sudden urgent need to fill the £55 bln budget hole and the dire outlook if we don’t act now. He will tell us: “You’ve nobody to blame but yourselves…” as he feeds us a spoonful of strychnine laced cod-liver oil to distract us from the real effects of deep cuts across the economy.
There are economic alternatives – ways a competent UK government could have planned and funded growth and job creation… but not for this Government. We will be forced to accept we’ve been living outside our means, that spending has to be cut to promote growth. It will be backed up by a succession of wealthy, elderly, white males and successful City Analysts in expensive frocks being sagely interviewed as to why the Government is doing the right thing. It will be a classic “in order to save the village we had to destroy it” moment.
I will stick out another comment later today once the dust has cleared… but… I fear the worst. This budget is going to trigger consequences that will rock the UK for decades and probably hasten its split – all in the name of discredited politics.
I could explain the reality behind today’s financial mess, how we got here, the bad choices repeatedly made, how Brexit left the ruling political class rudderless and ill-prepared, why that opportunity has been squandered and is now a burden, and why the Office for Budget Responsibility thinks the UK’s financial outlook has crashed and why the expected shortfall over the next 3 years is expected to double to £70mm – that’s the way interest rates work.. And I could explain the multiplier effects of govt spending on the economy… but nothing will change about the damage about to be done to our long-term prospects.
Apparently, you can get odds of 100-1 the Tories will announce to reinstitute a “Window-Tax” this morning to try and put the nation’s finances back on track… Why not? The Poll Tax riots in 1990 were down to the same forces that triggered Peasants Revolt 600 years previously…
The City and markets will probably welcome the “certainty” this Austerity Budget will bring. As we all know, the City is deeply concerned about ameliorating social inequality, the burden on the weakest in society, the negative outcomes on pensioners, the sanctity of the NHS, Education and Defence, and the stability of the Union. (Sarcasm Alert – the City does not give a flying **** except where the money is.)
After three Governments this year each promising completely different economic outcomes – The city will be delighted to have a budget that actually sort of adds up in simple housewife budget terms. Boris promised us Cake and more Cake. Truss promised us Growth, Growth and Growth. And now we are getting red hot pokers where it will hurt most in our wallets.
Chancellor Hunt is unlikely to make reference to the fact all these governments were actually the same – the Tories have been in office these last dozen years. Instead he will make some blandishments about fiscal stability and prudent financial competency, while prescribing a course of leaches for an economy haemorrhaging from a decade plus of unmatched political incompetency, the lick-your-fingers-and-stick-them-in-the-socket moment that was Brexit, and the WTF was the Liz Truss moment.
And we will lap it up… proof positive this is finally what we need; Conservatives demonstrating their mastery of national finances as we are left shirtless on the road with our empty wallets in our hands.
Even Donald Trump at his worst doesn’t compare….
As inflation shoots past 11%, as the economy contracts faster than anywhere else in the G7, as… blah, blah, blah – you can name about any 12 random things that will be worse here than anywhere else. Because that’s the way it feels….that’s the way it is.. Even the Paris stock exchange is worth more than the FTSE.
The reality is the UK is staring down the gullet of economic catastrophe, as the unions are set to inflict a winter not just of discontent but fingernail wrenching pain and more pain, and even the North Koreans are offering humanitarian aid… What is our political leadership going to do about it….?
Make it worse. Make it much worse…
To be frank.. I don’t know why I am bothering to write this. By the time most of you read this Morning’s Porridge, the body will already be swinging from the rafters…. Sad tear stains on the floor and a scribbled apology pinned to its jacket…
Austerity is a wonderful thing – we will be told. Stop spending and the nation’s coffers will magically repair themselves. Effectively the UK has been in austerity for decades. Saving money by cutting services and making the country a little bit worse, day by day by day. The upside is when we are less broke, we can go ahead and rebuild the economy…. First, or course, remembering to undo the damage massive spending cuts will do to the economy and its future path.
- Councils around the nation starved of cash?
- Schools cancelling any kind of music lessons, art classes, sports, stopping homework clubs forcing parents to choose between work or child care?
- The unbuilt national infrastructure? I read an estimate of £40 bln of unbuilt schools, hospitals, roads and more.
- More Food Banks?
- Fewer tanks, planes and ships – cutting the UK’s overseas defence sales and reputation – where we currently rank about 5th.
The list is endless. The damage will be immediate and long lasting. It will be like the 1930s all over again… except worse… we won’t be able to reopen the Shipyards to fight the good fight.
Long Term the consequences of austerity in terms of populist politics of the Right and Left, increased nationalist demands for the break-up of the UK, and the diminution of the UK’s soft-power, are pretty much nailed on..
We are getting austerity… because it’s the only option left to the Tories after what’s been a stunning 12-year cavalcade of economic and political failure. And it’s all my fault. I voted for them and Brexit. I am therefore definitionally an idiot, and I pray my Children will forgive me…
Further comment later today…
Bill Blain
Strategist – Shard Capital
14 Comments
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To be fair I believe that much of Europe is in the same sort of doo doo. I mean winter is coming and next year the gas will be quite expensive for everyone even the Yanks. At least austerity might lead to a virtuous bond market/sterling circle for a bit.
The UK case is a little worse, but expected. The argument is that it is worth it to ‘take back control’.
“Bank of England governor Andrew Bailey said the central bank was sticking by its initial prognosis issued after the June 2016 referendum, when it warned that Brexit would shrink the UK economy.
“This (estimate) was done pretty soon after the referendum, it essentially assumes that there is a long-run downshift in the level of productivity, a little over three percent,” he told the same committee of MPs.
“As a public official I’m neutral on Brexit per se, but I’m not neutral in saying that these are what we think are the most likely economic effects of it.”
Beyond trade flows, one apparent illustration of Brexit’s impact emerged this week with new Bloomberg figures showing that the Paris stock market has now outstripped the combined value of London’s — $2.823 trillion to $2.821 trillion.
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There are two elephants in the room that explain much of the trouble that U.K has with its public finances: 1. Substantially closing the whole economy for about eighteen months under intense pressure from the medical establishment and the media, and 2. Imposing an embargo on Russian oil (and effectively gas too) leading to soaring prices for energy, hydrocarbon feedstocks and fertilisers. The latter, according to Biden, was meant to “turn the Ruble into rubble”; it didn’t. Both of the above political choices were (and remain) fully supported by all political parties in the U.K. So, it isn’t just a Tory economic mess, albeit, they are the ones in the hot seat.
I might add that the defenestration of Boris Johnson, under more intense pressure the the U.K. media outlets, probably went down pretty badly in large parts, outside of the M25. He was the popular clever “bounder” that caused many of them to vote Tory in the first place. His character flaws were already well known to all and – for many – were priced in.
I suspect a large part of the population are utterly deflated as they come to understand our political class not only don’t have the answers, but are driven by greed for power and ambition rather than service. THe multiple mistakes made over the last few years has severely damaged our confidence in politics, and thats a dangerous enviroment for political populist extremism.
That said, I do think a complete reset – via an general election – is needed.
Tories are not bad people – they just utterly lost the plot in 2015.
At the risk of asking a silly question what jumps in my head is can UK not issue more bonds to fund the budget deficit as we do, and seemingly will keep doing, in the US. I assume they are, but what is different about the US vs UK economy that is causing the UK to panic about the deficit but the US to seemingly just keep issuing debt with no really worry?
Great question – because Kwarteng and Truss lost the confidence of markets…
I’d say the main reason the US is seemingly able to issue bonds in ever increasing amounts regardless, is because the USD is the Reserve Currency.
I had to look up “window tax”. Don’t fret too much, I see incompetence everywhere, not just in the UK. Seems to be brought on by political division. The political division really starts when the populace allows politicians to stop addressing issues based upon reality and facts. Even if one side starts it, it seems to make both sides dumber. And then it is a long spiral downward.
Meanwhile here in the US, 15 states are issuing “inflation relief checks” to taxpayers to offset the effects of inflation….. dogs chasing their tails.
‘We don’t live alone. We are members of one body. We are responsible for each other. And I tell you that the time will soon come when if men will not learn that lesson, then they will be taught it in fire and blood and anguish.’
So basically Bill, we’re in a sovereign crisis as opposed to a banking crisis ?
Whereas 2008 was a run on banks, it’s now a run on country’s ?
Not quite… but some countries are going to suffer badly…
There will be a lot of blame to go around in the western democracies, and political parties will go deep to blame the other. And while we eat our own, and our pols take us down the wrong roads (looking like they’re doing something), world hegemony is at stake. The West has become sickeningly tolerant of the likes of Putin and MBS. Their bullying behavior, creating crises in energy and food have created real and deep problems. The reaction of our pols is to expend ridiculous amounts of energy and capital in addressing the micro symptoms while the macro cause goes on ignored. I don’t know the answer here, but it seems to me that a sympathetic China must be involved in any solution. Is there a swaying answer to “What’s in it for China?”