FT news on handbag economics

This FT article ‘Sunak faces worst hit to UK finances since second world war’ is worth reading – not so much because it indicates that Sunak has got pretty much everything wrong about money that it is possible to get wrong but also because these misunderstandings have lead him to think the rich have to pay…

When the chancellor delivers his statement to the House of Commons next Wednesday, the spending plans will be based on forecasts showing the economy will still be suffering the effects of coronavirus by the likely time of the next election in 2024.

The Office for Budget Responsibility, which independently produces the government’s forecasts, is on course to follow the Bank of England in predicting the UK economy will contract close to 11 per cent in 2020, the worst annual performance for more than 300 years.

Brexit will only add to this of course. Yet this is the party of ‘fiscal rectitude’ which is usually a cover for Maggie’s handbag.

So hurray for wanting the rich to pay… But they are wanting them to pay for the wrong reasons. It is not that they are a source of money, it is simply that money should be more equitably distributed and because it hasn’t been, tax is needed to assist that progress.

After all even the German government has as a result of the pandemic, abolished their deficit laws.

It is though still, monumentally depressing that we are told that the state finances are like a household – and in spite of this, government allocation of billions to dubious friends seems to be fine.

And that, the FT doesn’t even mention.


  1. Jim Osborne -

    I think it likely that Germany is going to have to seriously consider abandoning its fiscal rules permanently. The only reason they have been able to sustain a fiscal surplus for so long is because they have run a large trade surplus for so long. Brexit threatens that….no deal will adversely impact their trade with the UK. This is why Merkel is keen to avoid a “no deal” scenario. However, getting a deal which protects German trade with the UK could damage the single market. To maintain the integrity of the EU the Germans are going to have to move on their fiscal rules……a hard pill to swallow.
    This is one of the reasons why I have been arguing within the Scottish indy movement that Scotland needs to keep an open mind on whether to re-join the EU and avoid making any commitment as part of the indy campaign. Quite simply we just don’t know whether there will still be a functional EU to re-join in 3 years or whenever independence happens

    1. Peter May -

      Think the last is a fair point but I’m not sure Britain is really as vital to the German economy as many like to think but as almost all the rest of Europe has been worse hit than Germany itself by Covid and Germany is the principal exporter there is every chance that they will suffer a severe hit. They export quite a lot to China but I can see China being much less keen on importing when their own exports are hammered by the collapse of markets in the US and Europe

  2. Jim Osborne -

    UK pretty important to the German car industry; engineering too perhaps. A quick google search suggested UK overall trade deficit in goods with Germany is £29bn. That looks like about 10% of Germany’s total trade surplus.

    1. Peter May -

      Blimey, that is a lot.
      Probably reflected by similar amounts for France and maybe Italy – all of which, as a result of Covid, will be falling I suspect.
      No wonder Merkel (like me) wants a deal! Germany will, I can hope, have to reconsider its everyday trade surplus and particularly its budget surplus ideas…

      The Netherlands too, has a trade surplus, which will be hit by Brexit – though they of course have a smaller economy and have also, not done as well with Covid…
      I’m beginning to think you might have a point about the fiscal rules!

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