Economic challenges are here to stay
Monday, 05 December 2011 11:31
We’ve had two very important announcements this week. The first was the regular economic assessment from the Office for Budget Responsibility, the independent body set up to give proper evaluations and forecasts of the British economy free from interference and massage from the government of the day. And pretty grim news it was too, if not quite as bad as some commentators had previously suggested and some opposition politicians may, I’m afraid, have hoped. Certainly growth in the economy is now substantially lower than had been expected a year ago, as it is in all the other European countries and the United States, and for the same reason; the instability in the eurozone.
Then we had the Chancellor’s autumn statement, and of course it has to take into account the economic realities. Some would argue that a change of course is necessary. Wiser counsel would say quite the opposite, and there is one economic statistic which more than makes that case. Eighteen month’s ago, Britain was on the brink of having its credit rating reduced. The effect of such a move would have been very simple – it would have meant the cost of borrowing would have increased, and interest rates for mortgages and business loans would have gone up. Instead of that, and as a direct result of the difficult measures the government put into effect then, the UK is the only major western country which has had its credit ratings improve.
What does that mean in practice? Well, Italy’s interest rates are now 7.2%. Ours are less than 2.5%. And if those interest rates went up, as they surely would if the international markets found our deficit reduction plan less than convincing, given we still have a huge shortfall, then for every one per cent rates went up, taxpayers would have to fork out an extra £21 billion in debt interest payments to overseas creditors, all of which would have to come from further cuts in public spending or hikes in taxation. On top of that, the average family with a mortgage would have to pay £1,000 more on their house, and the cost of business loans would go up by £7 billion. That’s worth thinking about when the “easy option” of slowing down deficit reduction is suggested as if that was an answer.
Of course what we all want is for the economy to get going again, and government can help in that by bringing forward spending, particularly capital spending - that is to say building roads, improving railways, creating internet capacity - within current spending limits. And that’s precisely what the government has announced, and why I shall now be redoubling my efforts to get at least some of that cash spent on our needs in the west country, particularly the long overdue safety improvements to the A303.
There are other small areas of good news. The largest ever cash rise to the old age pension. Protection for disability and jobless benefits. Massive new business loan arrangements. An extension to free nursery care. A freeze in council tax and a cancellation of fuel tax increases. But overall, It’s an austere plan. And, sadly, it needs to be.
David in Parliament
- Opposition Day: [Un-alloted day] — Individual Voter Registration (16 Jan 2012)
- General Matters (20 Dec 2011)
- Points of Order (20 Dec 2011)
- Points of Order (20 Dec 2011)
- Written Ministerial Statements — Leader of the House: Draft Parliamentary Privilege Bill (19 Dec 2011)