Forgive me, but with my ex-hedge fund manager’s hat on I can’t let the end of the tax year slip by without a comment on the recent budget and the march against cuts in London.
My son keeps asking me to try and explain “what’s going on in the world at the moment” because he’s at University and wants to be able to give the other side of the argument. He’s like that. He’s studying Philosophy and English, and he’ll make a good Barrister on day, as he’ll argue the other side on anything.
So here goes, and with a health warning, I’m not a politician. I studied economics and I hold no deep political views.
However, I am frankly shocked that Ed Balls can get away with saying that we can afford to stop or moderate the program of cuts announced by the coalition government last year. Step back and look at where we were in May last year. The dollar was hovering at $1.45 to the pound, having fallen from over $2 dollars to the pound in 2008 and the Euro, that battered currency, was heading towards €1 to the pound. We were on the brink of a currency crisis.
If the new government, whoever was chosen, had not instigated some radical cuts to expenditure then the international community, who buy our debt, could well have walked away from the UK, leaving the pound to collapse and the cost of our borrowing to rise.
So let’s talk about the deficit. Firstly, the deficit is not our government debt; it is the difference between our income (tax revenue) and expenditure. If you or I started spending 10% more than we earned, and we had already borrowed a substantial sum of money, the bank would probably come knocking on the door and asking when we would be rectifying this. It is the same with national governments. The banker is the global financial community who buy our government debt, gilts, treasury bonds, they are all names for the same thing. Our deficit is huge, it is forecast to rise to £163bn this year, and we are currently spending over 11% more than we earn in tax revenues. Our deficit was over £10.8bn in the month of February alone, up £2bn on February 2010. That means we spent £10.8bn more that we generated in tax revenues in February.
So how do we compare to the basket cases of Europe? Ireland had a similar budget deficit of over 11% prior to its collapse; Portugal, whom the EU is bailing out this week had a budget deficit is nearer 8%. So what about our total debt? How much do we owe? We currently owe £875bn. This is about 60% of our GDP and it is rising. Even with the cuts announced we would still have a budget deficit of £74bn next year.
When the global financial community lose confidence in your ability to pay back your debt then two things happen. Government bond markets sell off, because less people are interested in buying them, that means that interest rates rise and the value of the currency will fall.
Without the cuts announced we could be facing a very difficult outlook. Interest rates in Portugal and Ireland are now around 8%, double those in the UK and the rest of Europe. Imagine what would happen to the UK economy if mortgage rates doubled. What would happen to house prices, and then the inevitable spiral of bad debts and a further collapse of the UK banks? We are a net importer of almost everything into this country, as the value of the pound falls all prices will rise causing a further squeeze on the economy.
This is why we have to cut government expenditure and reduce the deficit and start to reduce our national debt.
But surely we can raise taxes? Sadly, we have been doing that for the last ten years, but in rather stealthy ways, like congestion charges, stamp duty on housing and national insurance rates. We have to remember that even prior to the financial collapse in 2008, because government borrowing had almost doubled over the previous five years, we were still running a deficit at that time. Now our taxes are some of the highest in the world and we have already instigated emergency tax rises to try and stem the tide.
Unfortunately, raising tax rates often leads to lower tax revenues. A chap called Arthur Laffer proved that in the 1970s (the Laffer Curve) and that’s what led to the Reagan tax cuts in the 1980s. The problem is that we are part of the global economy where companies and increasingly individuals, are free to offer their services from any country in the world. Often, companies and now individuals will move to base themselves in countries that offer lower tax rates, and it’s happening here. I personally know of several companies and individuals who have done exactly that in recent years.
We need to encourage wealth creators to stay and work in the UK. In fact you could, and we should, be arguing that we should be cutting taxes to encourage spending, rather than increasing taxes to fill a hole in the government deficit.
Now some might argue that the government should be spending more money to get us out of this hole. We should, but the government can’t. They have no money. They are already spending more than they earn and do we want them be spending more of our money?
However, the most important thing that our government can do is to maintain the support of the global financial community, because if they don’t then interest rates will rise significantly, the currency will fall and we will have one hell of a mess.
So there you have it. The British government is spending more than it earns and has one of the largest deficits in the world, government debt levels are still rising and we need to rein in expenditure, otherwise the global financial community will come knocking on the door and force us to do it, as they have in Greece, Portugal, Ireland and Spain.
It all argues for continued cuts in government expenditure as painful as they may be. However, where you cut is the political decision. Personally I am disappointed that so many young people will be put off going to university by fees of £9000 per annum and I think we need to offer more bursaries to help the poorest get to university.
I promise to write about wine later this week.
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You might have seen Liz was on South East Today last night talking about the South Downs National Park.
We have finally found a copy of the film clip about Rathfinny that went out on BBC South East Today in February.
Have I really lost that much hair? It must the stress of trying to get those essays in on at time at Plumpton College. I can read and write, just (I am very dyslexic!), but I struggle with the technology needed these days to complete a University degree course. When I last went to Uni you could plagiarise mercilessly, as long as you changed the words a bit, as everything was written in long hand. Now everything you write has to be typed, beautifully presented, Harvard referenced and then passed through a computer that compares it against all known text, (surely it can’t do that?!) giving you an ‘originality score’. Scary stuff!!
I’m pleased it has started to rain so the poor trees can start growing. We are planting out our cover crop of Mustard. More on that later….
It was a typical off the cuff comment to our tree man, Richard Bartlett, a few weeks ago that put me on the hunt for the perfect way to water 377 young trees. “Should I be praying for rain” I laughingly remarked after noticing on our weather station we’d only had 6mm in two rather pleasant weeks. “You mean you haven’t been watering them?” he replies incredulously. “Umm, errr , well not exactly, no”. Straight on to the phone to Mark and a few minutes later we have a plan. Rent a water bowser locally and we would do it the next day, simples! Well it would have been if any of the machinery hire places within a radius of 100 miles actually had one on their forecourt. Back on the phone to Mark, right we’ll buy one he decides, so I’m back on the internet and the phone to find someone who can deliver a 400 gallon water bowser quickly. An hour or so later I find a company who can deliver one the following afternoon, a quick card transaction and the deal is done, simples!
So I wait and watch for the delivery truck the following day, not so simples, it does not turn up. 24 hours later and it arrives, and we are only 2 days behind schedule. The truck driver parks up in front of the farm buildings rolls up the canvas and there it is, a beautiful blue bowser on it’s shiny galvanised trailer, all 990kg of it. “Got a forklift handy, luv?” “No, why?”I reply unnecessarily- a penny is slowly dropping and I know why alright, it’s a meter off the ground, weighs a ton and he has no apparent means of unloading it. The charming driver scratches his head and looks bemused “I wondered ow I was gonna get it orf when they was loading it this morning” Long story short and many expletives/phone calls later, Duncan the contract farmer comes to the rescue with a JCB with two big prong thingy’s on the front and it is expertly placed on Rathfinny soil, but not before I realise the coupling on the trailer needs a pin not a ball as on our truck tow bar. Oh boy here we go again, more phone calls and a trip to Eastbourne the following day and we have a bowser full of water attached to the truck and only three days behind schedule.
Mark comes down to help the next day after Plumpton, stands at the top the first line of trees, turns on the tap and……a mere trickle of water limps out of the hose. Using a 2 litre plastic milk container we work out that it will take 160 seconds per tree , there are 377 trees, you do the math! Suffice to say by the time we clocked off we had 347 left to do. We needed a pump, simples!
Back on the phone and back to the shops for me and with the help of the wonderful Tony Robbards (our handy man) the next day we are good to go with a hose and a wand, a pump that pumps a gallon of water every 15 seconds and an extension that plugs the whole contraption into the cigarette lighter – only five days behind schedule and the trees are watered. Simples!
Our little blue boswer in action!
Mark Here – I have just read on article on the drinks business website which claims that Champagne shipments to the UK were up 16.3% in 2010 to 35.5 million bottles.
This is an encouraging sign after the slowdown in 2009. According to the Comité Interprofessionnel du Vin de Champagne (CIVC), sales to the USA also rose by 34.9% to 19.9 million bottles and shipments to Germany were 13.3 million. However, the really big news is what is happening in the emerging markets. Sales to China rose by over 90% and are now over 1.1m bottles and shipments to Russia were up 88%. Wine consumption in China, largely driven by wages, is growing at over 20% per annum.
Incidentally I was lucky enough to be invited to the Champagne Information Bureau (CIB) annual tasting last Tuesday of 83 different producers, displaying over 250 wines. Amongst some spectacular wines there were some really disappointing ones as well. We tried to taste a lot of the smaller less familiar names and perhaps that is where we went wrong! But several were very short on fruit, and had an unpleasant tar character on the nose. We also found that a couple of the wines made of predominantly Pinot Meunier had an astringent finish. However, we did find a couple we liked a lot.
Alfred Gratien – NV Brut – had good fruit and balance and good length, with barrel fermentation showing through.
We also liked the Francois Dilligent – Cuvee Anastasia – and the Triple Pinot Rosé. The fruit from the Pinot Noir really showed through and the crisp dry finish was excellent. We even tried the Francois Dilligent 1990, which was like a fizzy Burgundy, wonderful.
The CIB ran a fantastic event but many of the English Sparkling Wines are up with the best of the French, and better value.