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Why Gordon Brown Wants Us All To Party

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Money Morning

Essential investment news & insight from www.MoneyWeek.com

17 January, 2006

* Why Gordon Brown wants us all to party

* The UK's biggest growth industry - debt counselling

Gordon Brown would love us all to swallow the line that his cry for a new “British Day” is about nothing more than having a big group hug. Journalists of course, are more cynical than that, and most reckon it's a blatant attempt to woo an English electorate who might be concerned about his Scottish background. But here at MoneyWeek, we don’t think that’s his motivation at all.

Sure, some English voters might be a bit annoyed that their kids now have to pay university tuition fees because Scottish MPs were allowed to vote on the topic. They might also feel slightly aggrieved that the same Scots MPs are ensuring that English “educational refugees” who come north of the Border have to pay over the odds for an education that Scots students get for free.

But that doesn’t mean they won’t vote for Mr Brown if they think he’ll make a good Prime Minister.

So what do we think the Chancellor's motives are? The truth is that he is hoping that the prospect of a “British Day” jamboree might make us all forget that the country’s economy is heading down the tubes headfirst, and that it’s largely his fault.

Like any good politician, he knows the importance of bread and circuses. But it’ll take a damn sight more than a few street parties and some bunting to distract the population from the economic misery headed our way.

The UK consumer is at breaking point. According to The Sunday Telegraph, the National Debtline “is being overwhelmed by record numbers of callers who fear they could go bankrupt in the aftermath of Christmas.”

Apparently two-thirds of calls went unanswered in the past fortnight. It has received more than 12,000 inquiries since the start of the year, and is on course to experience its busiest month since it was established in 1987. Bear in mind, the helpline was set up before the last housing crash, during which plenty of people must have felt the need to phone for debt advice.

And just in case you’re thinking that things are better on the corporate side of the equation, news comes from accountants Ernst & Young that UK profit warnings jumped 30% during 2005. They now stand at their highest since 2001.

And according to a report from London Business School and US-based Babson College, the number of people setting up their own businesses in the UK has stopped growing, despite the Chancellor’s constant speeches about entrepreneurship. In 2005, 6.2% of people were setting up or running a business less than two years old. The figure for 2004 was 6.3%.

And life isn’t going to get any easier for either the consumer or companies for two key reasons – taxation, and energy prices.

A Bank of America report suggests that the UK’s tax burden is set to rise above Germany’s this year. UK tax revenues look set to reach 42.4% of gross domestic product this year, up from 40.7% in 1999. Meanwhile, German taxation will slip to 42.1%, from 46.7%. Whichever way you look at it, that's bad news for the UK. Especially now that some of our biggest companies are looking at relocating to other countries to escape Mr Brown's heavy-handed craackdown on corporate tax planning, according to City law firm Linklaters.

And as taxes squeeze incomes at one end, so energy prices will continue to nibble away at the other. The pain for manufacturers continued in December, as surging oil and gas prices pushed input prices up by 17.2%, a record increase.

It doesn’t look like oil prices will be retreating any time soon either. Iran is getting shirty about attempts by the UN and US to shut down its nuclear programme. The country’s economic minister, Davoud Danesh-Jafari said that any sanctions imposed could lead to oil prices “beyond levels the West expects.”

Meanwhile, Shell was forced to state that it has no intentions of withdrawing entirely from Nigeria amid rumours that such a move was being considered. The group evacuated about 330 workers on Sunday after an attack by militants in the region, which killed six people.

Rising energy bills, rising taxes, a debt burden in excess of £1.1 trillion – and Gordon Brown wants us to celebrate British Day? What’s there to celebrate?

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