You can't be sure when history is being written, but it may be this morning. With oil prices down 30%, the FTSE due to open more than 6% down, again, US markets showing all US government borrowing is now costing less than 1% pa and markets in complete fear that credit will fail in oil-related markets, and that this credit crisis will spread, I'd say this might be the day when the great crash of 2020 really begins. If so coronavirus will have caused enormous financial damage even if it transpires that it can still be contained, which I think (and markets clearly think) unlikely.
And this is the week of the first UK budget for well over a year, and the first by Rushi Sunak who has been in post for just a month, meaning that he has had no real time to learn almost anything of the ways of government, let alone the Treasury.
There is a slight personal challenge in all this for me. At about the moment Sunak sits down on Wednesday I will be going live to comment on what he has had to say on the Jeremy Vine Show on BBC Radio 2. I will be up against Mark Littlewood of the Institute for Economic Affairs. I do, at least, always start with the advantage of being the decided moderate in the room.
But what to say? Of course, that depends on what Sunak has announced. Most commentators think he is still going to deliver a conventional, if limited, budget speech. The implication is that he will ignore the impact of Brexit. The OBR will have given it a nod in weak budget forecasts reflecting amongst other things changed migration forecasts, and their growth forecasts will be down, again, but they finished work before coronavirus panic (or is it reality?) broke out. So what they have to say is, already, almost meaningless. The expectation is that he will nod it through.
The broad view is that he will also make a few rather empty sounding gestures on flood defences and capital spending, including hints at environmental spending, all of which can be guaranteed to be far too little, too late and which will send the message to COP26 that the UK does not care unless he gets an autumn budget in before that event and delivers the most radical of plans then.
There will be token gesture tax changes, on corporation tax (long trailed) and entrepreneur's relief, which should have been strangled at birth when Gordon Brown created it, so badly was it designed, as I have pointed out for much longer than most.
And there will be some discussion on emergency funding and a nod that says that in the circumstances the fiscal rules will be hard to apply and a more relaxed attitude will be required for the time being, but the goal still remains that current spending be covered by tax and borrowing will only be for the still quote modest amounts of planned investment this government will want to deliver, however overwhelming the need for action.
This will keep most commentators happy, it would seem. Read the papers and they're almost all saying that Sunak should hold his fire for an autumn budget. But that's absurd. If he has any sense he will ignore such advice. There is good reason for my saying so. By the autumn if he goes with the majority opinion his reputation will have been shattered.
It is not, of course, Sunak's job to fuel panic. He does not then need to use intemperate language this week. Far from it, in fact. But it is his job to manage panic. He is, as the most senior economic representative of what is still one of the most significant financial centres on earth, required to show level headedness in the face of what is going to be happening all around him over the coming weeks and months. And let me assure you, announced changes to entrepreneur's relief are going to have no impact on what is to come. Nor, come to that, is anything that will be said on fiscal rules. If we are, as seems likely, going to be in meltdown then the rules go out of the window.
There is a living ex-chancellor who did manage this situation well: that was Alastair Darling. I have a mass of political differences with Darling that are at this moment irrelevant: he did show a calm head in a crisis. Sunak needs to do more than that: he needs to show a calm head in advance of the real crisis, which has yet to happen. And what he must do is show that he can think his way through what will happen.
He has two choices here. That makes his options easier to choose between. He can either play a role as a victim of the storm, being tossed around with his budget torn to shreds, and saying all will be restored to good order eventually. That would be the neoliberal way, because neoliberals always think the market knows best and will live with its consequences. Or he can behave like the grown up in the room.
That would require something completely different from Sunak, and he would need to set out his plan this week. Miss that chance and things might get much worse. In effect he has to do what might be called a ‘Draghi'. As head of the ECB Mario Draghi said in 2012 (if I recall correctly) that he ‘would do whatever was necessary' to stabilise the euro. He did not spell out precisely what that was. He did not need to. People just had to believe him. And they did. So it worked. I did not like all he did. But he was the grown-up in the room. He took the lead. The markets followed.
Does Sunak have that ability? I do not know. No one does. But they would have to believe that he will do whatever is necessary. That would mean radical action of the sorts I have already outlined to maintain personal, corporate and banking solvency, because all are going to be under massive threat in coming weeks.
It will mean recognising that the cliff edge will have already arrived for government finances, and that they may well collapse over coming weeks.
And it will mean recognising that this does not matter: government in the UK can carry on regardless and without interruption because we do have a magic money tree, which can produce all the cash the economy needs to keep going. And it must do just that, however big the deficit will be.
Whilst it will also mean that the government must recognise that because this deficit means that the private sector - that's all of us - is going to be moving into the most massive period of saving - which is what always happens when people are fearful, as they are going to be - then it is the job of the government to spend.
That is its duty. Markets are failing. To keep the economy going the government has to react. It is its job to do so. It cannot stop us saving: we will do so whatever the government says or does. And so its job is to run with that reality and compensate for it by not just reluctantly spending what it has to - which is what payments of sick pay from day one of coronavirus quarantining is - but what it needs to - like beginning the programmes required to deliver the Green New Deal - because this is precisely what is now required to keep the economy going. It's also, by happy coincidence, also precisely what the economy wants and needs.
And all the money to deliver it will exist: I have already explained how the smallest of changes to pension and ISA rules could direct at least £100 billion a year to this productive purpose. That's the agenda for now. This is the joined-up thinking that we need.
Will Sunak do the grown-up thing and come out as the full-blown Keynesian he needs to be this Wednesday, on the one and only occasion he will have to prove that he will be the person for the crisis by delivering a speech that will reveal he fully understands the scale of the issues that he faces? I regret to say that I doubt that he will. I strongly suspect he will well and truly fluff this. But I can live in hope that he will truly understand that what the current situation requires is and that he accepts the role that fate his given to him - to be the Chancellor who could dig us out of the hole we're going to be in if he appreciates now that spending to keep the economy on track is the only thing he can do. Hope is a fine thing. History does not always prove that it has existed in the required quantities.
We are going to be living in interesting times.
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Although the budget speech has not yet happened, it appears that National Insurance and Income tax allowances have already been decided.
With great fanfare, the level of NI contributions will increase to £9,500, saving the average employee £104 per year (and most employers £120 per year per employee).
More quietly, it seems to have been decided that tax free allowances will be frozen at last year’s level. The basic rate will remian at £12,500.
If it had gone up by the average increase since 2017 employees would have saved £109 per year.
If NI had gone up by the average over the same period NI saving would have been £21 per year.
So a total ‘tax’ saving for employees of £130.
Instead they will get just £104. Trumpeted as reducing tax for the low paid.
I hope the gov.uk site advising employers of the rates to use next year has jumped the gun, but I doubt it.
These things are never the focus of the budget now
oh my,
Jeremy Vine & Mark Littlewood, don’t forget your crucifix & garlic.
I admire the bravado of parliament gathering for the spring bodge-it ritual, just when large gatherings of people seems best avoided,
hopefully the place will be packed, rather like a childrens measles party,
I’ve been glancing at market indicies, Wahabi Arabia seems rather desperate at the moment, the US oil patch looks rather fracked and red seems to be the new black,
we are living in interesting times aren’t we!
don’t neglect your health and well being Richard, make sure you’re getting plenty of vitamin C and exposing your skin to strong sunlight, get that vitamin D level up, it’s been a long winter.
Noted!
Plenty of bird watching then….
Richard, I hope that when you are on the Jeremy Vine ‘show’ you will manage to keep things simple – perhaps, as you say above, push for the investment rules for ISA’s etc into Green bonds, and for the Green New Deal. Try to think of simple ideas of things that can be built – make it very accessible to the ordinary person.
Build on that consensus that said we should have spent more at the 2008 crisis – instinctively, people like good quality capital expenditure.
On the personal income front – challenging Universal Credit waiting periods and suggesting a couple of ways of getting money into those who have little security – talk about fairness and helping people through.
Sometimes it is about what you don’t say that is important on a popular media broadcast.
You will have things to say about what the Chancellor says, and can perhaps pick up on one or two simple points. Your objective (IMV) is to have people listening to you and being able to understand your thoughts and ideas.
Hope it goes well.
Noted
That is what I try to do
I made the mistake of listening to the tail end of the Today programme this am and hearing the ever-smug Osborne rehearsing the case for austerity and boasting about what a good state the NHS and the economy are in to deal with Corona, let alone Brexit. Not a squeak of challenge from Nick Robinson.
Only to be followed by Marr with Mervyn King, Kate Ball and Jonathan Sachs, all making the economic and ‘moral’ (?!?!?) case for in effect, more austerity.
With a parade of right-wing thinkers like that, one wonders what on Earth makes people think the BBC is full of lefties
……which is why we should either say ‘Bye bye’ to the BBC or cleave the news side from the entertainment side, with the news/current affairs side of things going back to Reith’s remit.
The BBC’s news coverage make me sick in a country whose political economy is rotting corpse.
Good luck Richard with Oberleutnant Littlewood from the ‘Prostitute for Economic Affairs’.
There is a huge amount in the BBC that is still world class, certainly if you’ve seen what’s available in the US or even many European countries. It’s news and current affairs has a problem but even there there are exceptions. Newsnight and Emily Maitlis are very different to R4 Today let alone Question time. Then there is the World Service that has become my preferred listening.
Im more inclined to think that this is down to management and editorial policy and that’s where a targeted clear out is called for.
Scrapping the whole of the BBC would be not unlike leaving the EU because you don’t like some aspects…
On a point of information, it was Alistair Darling who introduced ER in 2008. Gordon Brown was Prime Minister, of course.
You’re making the assumption that Sunak has any say at all with what goes in the Budget. He was, after all, appointed only because his predecessor didn’t want to be a yes-man. So that leads to the question about what the motley crue of special advisors in No 10 want (I’m assuming the PM doesn’t care). Since they have all kinds of batty ideas about Maoist “creative” destruction and rebuilding the economy based on AI companies [tip to them: I work in this field, it’s not going to happen], I wouldn’t hope for the best.
I’m certainly tempted to agree with Rich…
http://www.progressivepulse.org/economics/treasury-rules-or-does-it
I do not hold out much hope for a man who advocates free ports and is yet another denizen from the City of London who sees no shame in using chaos to make money.
Agreed
Firstly the immediate comparison of a houseold economy to that of a state, so beloved of right wing commentators (and the BBC) , should be sent, once and for all and with the maximumof publicity, to Room 101.
It should now be apparent to all that existential risks that materialise cannot be managed by the market. The logic of the Household analogy is that although we have people, buldings, material and organisation skills we cannot react as human beings because we do not have the money. We have to get beyond this self evident absurdity.
This is a seminal moment, balance sheets across the world will be weakened and in many cases destroyed, revival funding will be necessary but if this is funded by everyone then the resulting recovery should be shared by everyone. The 2008 bailout funded by everyone simply saw a minority becoming ever wealthier.
“No man is an island, Entire of itself, Each is a piece of the continent, A part of the main”
Donne’s words are so powerful and important now, we should not allow the economic issues to be parted from the philosophical ones.
Robin
Equating my antipathy to the BBC with BREXIT is not clever or amusing to me. My position is quite clear. Reform the regulation of broadcasting across the board or cast the BBC into the pit it is almost in – free it to produce tosh like the rest of them can and do. I watched their latest insult to my intelligence ‘Noughts & Crosses’ the other night. Whoever commissioned that should be paraded through the streets of London in a donkey hauled cart with onlookers being encouraged to throw rotten fruit at them.
The BBC’s real position is that it is getting to the point that it is not trusted by Left or Right, BREXITEER or Remainer. Why? Because its managers are incompetent and are entertainers first, educators last.
The BBC is all about celebrity now. That’s why even its local reporters like to stir up trouble for the public sector so that they can make a name for themselves out of the slightest indiscretion or mistake. The BBC is just a ladder for fame lovers.
On a media handling course I was told time and time again that the media wants to provoke you into a response because it is more entertaining than eliciting a reasoned explanation because it goes along with the popular anti-public sector sentiment that has been bred by public sector hating Tories over the years. Either passively or proactively , the BBC has been and continues to be a Neo-liberal handmaiden. How do you know that the current Tory boycott of the BBC is not just a legitimising tactic to keep the BBC listened to by people whilst it pedals its Neo-lib nonsense? Did that occur to anyone at all?
And please – spare me your homilies about the World Service will you? It is so redolent of how the US self aggrandises itself by calling a sporting event ‘The World Series’ when only US national teams turn up. This idea – almost from our Empirical past – that only an English institution could project out into the world as a beacon of light and reason!! I ask you – what arrogance to think that we could do that, what superiority we must have, to think that that is what we are doing when you consider the real state of our politics, institutions and society. My advice – it’s a greasy pole – don’t cling to it because it will take you down.
If the BBC remains ‘world class’ as you say, it speaks to me that the rest of the world’s media must be piss poor in which case we really are in big trouble and it is no surprise why orthodoxy continues to blight people’s lives.
Richard is free to delete my comments about the BBC anytime but for me, and I suggest for progressives – they are public enemy Number 1.
May I recommend a film? Watch ‘Goodnight & Good Luck’ (2005) filmed in black and white and set in a commercial TV station during the McCarthy years in the US. I think it sets out the tensions in modern TV and how commercial pressures mean that TV in the modern age will not reach Reith’s potential remit. That’s right. It will not; it cannot. Look elsewhere for truth, balance and fairness.
PSR –
“the US self aggrandises itself by calling a sporting event ‘The World Series’ when only US national teams turn up”
Point of order… it’s called the World Series because the original tournament was sponsored by the New York World magazine. Nothing to to with American Imperialism and all to do with commercialism.
Whether or not those two are the same is another matter…
PSR,
No one would ever accuse you of being pro-Trump, but calling the BBC public enemy no.1 is from his playbook. No doubt you would be horrified to be associated with the man’s sentiments, but can we move on quickly from that sort of talk please?
Hi Richard.
Good luck today with radio interview. Bit late as a suggestion but………
Positive Money did a survey of MPs to see if they knew how new money was created in the economy. (When private banks make loans). 80% got the wrong answer.
If they don’t know………….!
I’m guessing most of the public think that “government” create all the money, not private banks. Maybe this is worth understand when talking about budgets and government spending?