Margareta Pagano: More balls, please, at the Treasury
With the economy in such a shocking state, Labour's only hope is a sharp U-turn on public spending – but does it dare?
Sunday 07 June 2009
Alistair Darling must be feeling brave. I don't mean because he stopped Gordon Brown from replacing him as Chancellor with Ed Balls but because of the shocking state of the economy.
Two sets of figures show why the UK's fiscal position is so catastrophic, and why Brown's position as Prime Minister is on such a knife-edge. This latest crisis may have been triggered by the scandal over MPs finances but the real cause is this country's perilous finances.
First, since Labour came to power in 1997, the number of jobs in the private sector has risen by 4.6 per cent while, staggeringly, the number in the public sector has risen by 20.9per cent – by 1.4 million jobs – to 8.1 million. Secondly, in this financial year, the Government is forecast to spend £4 for every £3 it raises from tax, giving us the biggest fiscal deficit recorded in peacetime. Recent figures from the European Commission add to the agony.
By next year, the UK is forecast to have the fourth biggest fiscal deficit in the EU. More telling, it estimates that three quarters of the jump in the deficit is due to the leap in spending as a proportion of GDP, a share of spending to GDP which will rise to an extraordinary 48 per cent. This would be the highest level recorded for more than 200 years – except during wars.
But then this is war – fiscal war. There are only two ways to win: inflate our way out of trouble or slash public spending. Endless government spending is no longer the sacred cow it once was – the public knows it is a debate that needs to be had and one which may even lead to efficiencies. I'm told that advisers are telling the Shadow Cabinet to look at where cuts can be made in each department, while the Lib Dems talk openly of trimming.
Secretly, the Labour Party knows that slaying the many-headed monster that it has fed for the past decade is the only way to stop the UK facing sky-high taxes and runaway inflation. But it still refuses to acknowledge this publicly, particularly with a general election looming any day now.
One intriguing theory floated last week by those backing Brown's attempt to make Balls the Chancellor was that his young acolyte, the architect of much of his economic policy, could be the man who would dare to kill this Hydra. The theory was that Balls could go were others fear to tread – that only an old-fashioned socialist would be able to take the knife to the spending programme while keeping old Labour on side.
However, I am not sure I buy all this. It would have required Balls to take on Gordon Brown, given that the Prime Minister consistently attacks the Tories over their alleged plans to close schools and sack nurses.
It would be nice to think that Darling fought so hard against Brown because he wants another chance to repair the damage done by the spending splurge of the past decade. He's also got a White Paper on financial regulation to bring out, a chance to reform the tripartite agreement between the Bank of England, the Financial Services Authority and the Treasury.
Is it too much to hope that Darling's victory will give him the confidence to look for ways to balance the books? He could start by looking at Canada where, after nine years of aggressive spending cuts under prime minister Jean Chretien, they finally got the debt under control, leaving the country better placed than others to face the global recession. At the very least, Darling should be brave enough to start the spending debate.
Oh, the power of investor fury as Rio Tinto buckles – and its shares jump
Jan du Plessis, the new chairman of Rio Tinto, must be feeling rather pleased with himself this weekend. Shares in Rio rose more than £2 at Friday's close to £30 after news that the world's biggest mining group had finally caved in to investor fury, dropped the Chinalco deal, launching instead its deeply discounted rights issue. Having been chairman of BAT Industries, Du Plessis is well-versed in controversy. But even he will have baulked at the storm provoked by Rio's decision to invite China's Chinalco to take a near 20 per cent stake in the group.
Rarely have investors been so angry with a corporation. They were spitting blood at Rio's chief executive, Tom Albanese, who bypassed them with his deal to take $19bn from the Chinese in return for a fifth of the company.
But investors have been rewarded for their anger and for their persistence. They are being given 21 new shares for every 40 they own, representing a discount of 48 per cent at the closing price. This is a steal and they know it.
However, the bankers involved in the transaction are not so happy – Blackstone will be one of the biggest losers, not just dropping down the league tables but also losing up to £30m in fees.
Du Plessis hasn't wasted time either in getting the long-awaited rationalisation of the industry on track. Along with the $15bn rights issue came news of a sensible tie-up with arch-rival BHP Billiton to merge some of their iron-ore interests. Du Plessis was careful to protect Albanese on Friday, explaining that Rio went with the Chinalco deal mainly because the financial markets were in such a terrible mess back in February when the deal was first hatched. He's right to say there might have been little appetite for new paper then but the point is that investors should have been asked.
Rio is now in much better shape but it is difficult to see whether Albanese can survive.
New UK station Russia Today gives a very bizarre view of Britain
By performing as African Americans or Indians, white people get to play act a kind of 'imaginary liberation', writes Michael Mark Cohen
New essay by JK Rowling went live on Pottermore site this morning
Top Gear presenter is no stranger to foot-in-mouth controversy
- 1 'Nasa Confirms Six Days of Darkness in December': No, they don't - it's a hoax
- 2 Canadian actor punched in face after 'Islamophobia' experiment goes wrong in wake of Ottawa shooting
- 3 Topshop at centre of row over body image as 'shocking' skinny mannequin photo goes viral
- 4 Top Gear presenter Jeremy Clarkson criticised for beer tweet
- 5 The bubble bursts for Sodastream
'Nasa Confirms Six Days of Darkness in December': No, they don't - it's a hoax
Top Gear presenter Jeremy Clarkson criticised for beer tweet
Halloween 2014: From the Screaming Man of Pluckley to the 'White Lady' of the Tower of London - Britain's 20 most haunted places
The bubble bursts for Sodastream
Russian politician says Apple CEO Tim Cook should be 'banned' from country after coming out as gay
Pope Francis declares evolution and Big Bang theory are real and God is not 'a magician with a magic wand'
Huge surge in Ukip support after EU funding row, according to new poll
Ukip ‘exploiting grooming scandal’ to secure party’s first police chief
Nigel Farage: 'There’s nothing wrong with white people blacking up'
Maureen Lipman says 'she can't vote Labour while Ed Miliband is leader'
Muslims, immigration and teenage pregnancy: British people are ignorant about almost everything
iJobs Money & Business
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...
£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...