This story is from the UK but the same situation applies here: Taxpayers can bear no more, admits Alistair Darling.
Taxpayers are at the limit of what they are willing to pay to fund public services, the Chancellor has said in an interview with The Times. In his gloomiest assessment yet of the state of the British economy, Alistair Darling gave warning that the downturn was far more profound than he had thought and could last for years rather than months.
He revealed that he told Cabinet ministers this week that there would be no more money for schools, hospitals, defence, transport or policing.
He confirmed that the Treasury was considering revising its fiscal rules to allow more borrowing to deal with the economic problems. He said that he did not believe that voters, already struggling with higher food and fuel bills, would be willing to pay more tax. “People will pay their fair share but you can’t push that,” he said.
Mr Darling said of this week’s Cabinet meeting: “I’ve been very clear with my colleagues that there is no point them writing in saying, ‘Can we have some more money?’ because the reply is already on its way and it’s a very short reply. I told them at the last meeting of Cabinet they’ve got to manage within the money they’ve got.”
The Chancellor played down that the Government is reviewing the fiscal rules, which say that borrowing must not go beyond 40 per cent of gross domestic product. “This routine work has been going at the Treasury for several months,” he said.
He made clear that he thought that the only politically viable option was to increase borrowing, rather than to raise taxation.
Darling Under Pressure Over Record Debt
The TimesOnline is reporting Darling under pressure on record public debt.
Government borrowing has leapt since April, making grim reading for Alistair Darling and helping to explain why the Chancellor is drawing up plans to overhaul the Treasury’s fiscal rules, put in place by Gordon Brown.
Over the first three months of the new financial year, April to June, the Treasury had to borrow £24.7 billion – the highest figure since records began in 1946 and up by a startling two-thirds from the £14.7 billion total for the same period last year to an all-time high for this period.
In June alone, borrowing jumped to £9.2 billion, up by almost £3 billion, or nearly 50 per cent from the previous June, and also setting a record for borrowing in any June.
Borrowing Highest Since 1946
Bloomberg is reporting U.K. Budget Deficit Balloons to Widest Since 1946.
The U.K. budget deficit ballooned to the widest since records started in 1946, adding pressure on Prime Minister Gordon Brown to ease his decade-old borrowing rules.
The shortfall was 24.4 billion pounds ($49 billion) in the three months through June, the Office for National Statistics said today. Last month, the deficit expanded to 9.2 billion pounds, more than the median forecast of 7.4 billion pounds in a Bloomberg News survey of 17 economists.
The slowdown puts Brown at risk of breaching the two fiscal rules he created as finance minister in 1997, when he promised to borrow only for investment over the economic cycle and keep debt below 40 percent of economic output.
Net debt stood at 38.3 percent of GDP in June, up from 37.3 percent a year earlier and the highest since July 1999, the statistics office said. Including the liabilities of Northern Rock, the mortgage lender taken into temporary state ownership in February after its funding dried up, debt was 44.2 percent of GDP.
The quarterly deficit was at least the worst since the aftermath of World War II, when the country, its resources depleted by the six-year military effort, was forced to borrow $4.34 billion from the U.S. to stave off bankruptcy.
Brown “staked his credibility on the fiscal rules,” said George Osborne, who speaks for the opposition Conservative Party on finance. “The public finances are in a mess and the rules are being ditched. It’s like giving the prisoners the keys to their own cell.”
Brown is under pressure to deliver further giveways, said Robert Chote, director of the Institute for Fiscal Studies in London. Brown can “raise the money in taxation, cut spending or change the rules,” he said in an interview. “It looks today like it’s going to be the third of those that takes place.”
UK follows US Playbook
It looks like the UK is going to follow the US playbook and just spend money it does not have. With that in mind, let’s take a look at the British Pound.
British Pound vs. US Dollar Weekly Chart
click on chart for sharper image
British Pound vs. US Dollar Monthly Chart
click on chart for sharper image
Were it not for much higher interest rates in the UK vs. the US, the pound would probably be getting hammered. We may be coming to the end of a trend, regardless.
Mike “Mish” Shedlock
Click Here To Scroll Thru My Recent Post List