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Osborne To Reveal Borrowing Increase

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Currently the top story in the FT.

The “wrong kind of inflation” will mean the government has to borrow significantly more over the medium term than planned, George Osborne will be forced to admit in the Budget.

The chancellor is planning a “Robin Hood” budget that closes tax loopholes used by the rich and introduces a “Learjet levy” on people using private jets. The £1bn in extra taxes will fund small sweeteners to motorists, low earners and holidaymakers.

But the deterioration in the medium-term government borrowing numbers – in spite of a lower deficit than forecast in November – will cast a shadow over Mr Osborne’s deficit reduction programme.

...

In January, Robert Chote, head of the Office for Budget Responsibility, warned that certain types of inflation could be bad for the public finances and the UK faced just these sorts of inflationary pressures.

As Mervyn King, Bank of England governor, has said, high inflation is reducing real household incomes, so income tax and national insurance revenues are not set to rise as fast as they normally would in a period of high inflation. In contrast, state benefits and payments to holders of index-linked government debt is automatically linked to inflation and will rise faster then the OBR forecast in November, when it thought inflationary pressures would abate this year.

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"The £1bn in extra taxes will fund small sweeteners to motorists, low earners and holidaymakers."

Does he honestly expect us to think the "lear jet tax" will go directly to help motorists etc ?

The debacle in Libya is going to cost us far more than that.

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The debacle in Libya is going to cost us far more than that.

Libya, like every other war we've started since 1989, is designed to benefit the UK economy. It's a trade fair for our arms industry, which would've stood to suffer a big collapse after the end of the Cold War if we'd allowed world peace to break out.

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The “wrong kind of inflation” - I assume they mean people aren't borrowing (credit fuelled inflation), but the price of stuff is still going up (external inflation). Before we here cries for interest rate rises, think about this for a moment.

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The "wrong kind of inflation" - I assume they mean people aren't borrowing (credit fuelled inflation), but the price of stuff is still going up (external inflation). Before we here cries for interest rate rises, think about this for a moment.

That might be part of it, but they seem more bothered by tax receipts.

The lack of wage inflation means that people are getting poorer, but not paying more tax. So the govt is getting poorer too.

At the same time, many outgoings (like benifits and Mervyn's pension fund) are index linked, and the govt will have to pay more.

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The “wrong kind of inflation” - I assume they mean people aren't borrowing (credit fuelled inflation), but the price of stuff is still going up (external inflation). Before we here cries for interest rate rises, think about this for a moment.

It's because neither RPI nor CPI is a meaningful measure of inflation.

The rise in the price indexes is real inflation from ten years ago. At the time it was masked in the indexes by the rapid growth of cheap consumer stuff from China. And by the 'Blair Feelgood' of holding our energy and utility prices unsustainably low at the expense of necessary investment in infrastructure.

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When I first saw this article late last night, I was immediately reminded of the following:

’Balance of payments’ theorists argued, however, that this equilibrium was never reached, because of the effect of rising prices on the budget. German public expenditures, they said, were also rather irreducible in real terms, whilst the real value of tax receipts was eroded in times of rising prices by the inevitable lag of tax payment behind assessment. This made budgetary balance impossible without so reducing expenditure, or raising tax rates, as to throw Germany into economic chaos. Raising interest rates would have the same effect. The Reichsbank had no realistic option but to finance the deficit by monetary expansion. German budget deficits and low interest rates were not freely reversible by the German authorities as the quantity theorists claimed: German economic survival depended on them.

Theo Balderstone, 'Economics and Politics in the Weimar Republic', 2002 (page 42)

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When I first saw this article late last night, I was immediately reminded of the following:

’Balance of payments’ theorists argued, however, that this equilibrium was never reached, because of the effect of rising prices on the budget. German public expenditures, they said, were also rather irreducible in real terms, whilst the real value of tax receipts was eroded in times of rising prices by the inevitable lag of tax payment behind assessment. This made budgetary balance impossible without so reducing expenditure, or raising tax rates, as to throw Germany into economic chaos. Raising interest rates would have the same effect. The Reichsbank had no realistic option but to finance the deficit by monetary expansion. German budget deficits and low interest rates were not freely reversible by the German authorities as the quantity theorists claimed: German economic survival depended on them.

Theo Balderstone, 'Economics and Politics in the Weimar Republic', 2002 (page 42)

Ireland, Greece etc in the Euro zone are pretty much screwed then, if that is the case.

It would also mean a good rule of thumb would be to not deficit spend, unless you have access to the money printer.

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That might be part of it, but they seem more bothered by tax receipts.

The lack of wage inflation means that people are getting poorer, but not paying more tax. So the govt is getting poorer too.

At the same time, many outgoings (like benifits and Mervyn's pension fund) are index linked, and the govt will have to pay more.

If you consider that credit growth has helped pay for tax receipts during the boom, perhaps they were hoping further credit expansion would help them now too. I see little scope for further borrowing though and with each month the deficit remains, the tighter the debt screw is turned.

Sounds like those indexed linked bonds need snapping up by some QE! ;)

Edited by Traktion

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Taxy taxy.

(Not for the rich, obviously, despite Osborne's risible 'learjet' tax to make believe it will be :lol:)

It would appear it's turning out to be a tad more tricky than he envisioned. Lie with banksters Osborne and you're gonna catch fleas.

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The “wrong kind of inflation” - I assume they mean people aren't borrowing (credit fuelled inflation), but the price of stuff is still going up (external inflation). Before we here cries for interest rate rises, think about this for a moment.

Well that needs interest rate rises doesn't it? Imported inflation via the currency would be tackled by a strengthened currency.

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"sweeteners to motorists and holidaymakers"

This is probably reference to not implementing tax rises which have been planned in fuel duty and air taxes. Hardly a sweetener, like telling someone you are going to punch them in the face, then telling them you wont but expect a thank you for not doing it. No doubt the MSM will proclaim the government is helping the motorist if fuel duty is not increased.

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It's because neither RPI nor CPI is a meaningful measure of inflation.

The rise in the price indexes is real inflation from ten years ago. At the time it was masked in the indexes by the rapid growth of cheap consumer stuff from China. And by the 'Blair Feelgood' of holding our energy and utility prices unsustainably low at the expense of necessary investment in infrastructure.

True.

Having spent this long getting the country utterly f*cked it's going to be a pretty secure trap.

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Well that needs interest rate rises doesn't it? Imported inflation via the currency would be tackled by a strengthened currency.

That's too simplistic. If it was that easy, everyone would just crank up their interest rates and buy everything up.

Clearly, demand for currency is fed by more variables than the base rate, such as companies here making stuff which other countries want. In the case of the latter, we don't want said companies bankrupted by setting rates too high (EDIT: as it would kill the demand for the currency, which is trying to be bolstered).

IMO, the base rate increase is not a cause of a strong currency, but the effect of a booming economy leading to credit expansion. Putting up rates before the boom sounds like putting the cart before the horse.

Edited by Traktion

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  • 309 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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