UK Budget 2003 : Where was the Vision ?
I did not expect anything 'visionary' to be
announced last Wednesday
lunchtime by the government. When the UK chancellor Gordon Brown stood up to deliver the
annual budget speech, I was not holding my breath for something
spectacular. Yet a part of me remained ever hopeful, despite all that has
happened over the last few years, I retained a small degree
of hope that something useful might be proposed.
A Visionless Chancellor ?
Gordon Brown, UK Chancellor 1997- present
Photo : Labour.
Some 59 minutes
later, Brown sat down... having bored the hell out of almost all who
listened to him. I could handle the monotone of his voice, I could deal
with the dowdy attitude of his being, but what I could not accept was the
total lack of vision in anything he proposed. I just sat there post
speech, thinking 'huh ? what the hell, he did it again ?, absolutely
nothing !'. I was not surprised at the lack of passion in the man, who
could be after all these years ? But still, the UK economy is
something to be passionate about and Brown certainly failed the UK people.
The Developing UK Economy
Over the last few years the UK economy has shown amazing resilience in the
face of a massive global downturn. Despite what many think, the UK has
arguably been one of the best places to reside during the last 5-7 years.
The economy has grown - if somewhat hesitantly at a few percent each
year. Government investment has been steady, and tax revenues have
increased gradually each year. Inflation, interest rates are at historical
lows of around 2-3 and 4-5 % respectively. More people are employed than
EVER before - around 28-29 million.
UK GDP 2002 stood at £894 billion (CIA data), and production has been
rising at around 1.5-2.5% annually. Overall things in the UK look quite
(dare I say) reasonable.
Things have indeed been looking nice and stable - as 'Steady
Eddy' - the Bank of England's ex. governor would be proud to agree with.
But is this economic situation the best we can expect, or do we deserve
better ? After all, it is now 2003 and we are now proceeding along
in the early years of the 21'st century. Yet UK chancellor Brown acts as
though we are living in the mid 1960's. Where is the vision ? Where are
the grand schemes and strategies to tackle the economic/social issues that
this century will present to us ?
There was absolutely nothing in the Budget speech about the looming
pensions crisis. Yes, there will be a serious lack of funds to support the
growing elderly population from around 2020 onwards. Neither was there any
mention of the energy problems that will arise once the current nuclear
and Gas industry expire - in about 2025 and 2035 respectively. Sure, such
events are far ahead of us, but they do need to be addressed by someone -
sooner rather than later. I heard nothing in the speech to convince me
that the current government have any new ideas. The current government
came to power six years ago, ironically once they seized electoral power
they did'nt really know what to do with themselves. Blair and friends seem
to have spent all their energies on how they can secure the next election
win in 2005/6, rather than tackle some of these difficult and pressing
issues.
Anyway, why would I bother to write an article on the UK budget, if things are
in my view admittedly 'relatively nice' ? Well for one thing, there
remain some really stupid ways of collecting tax in this country. Over the
last 15 years UK chancellors have tinkered with the usual taxes, and added a
few new ones - such as the airport and insurance tax. Currently, in my
view there are simply too many minor taxes, each of which costs a relative
fortune in administering. Any tax collected should be fairly targeted, and
only be via an efficient means. I despair at the increasing situation of
new minor taxes/charges being applied. A classic is the congestion charge.
It is a wildly inefficient means to raise revenue. A relatively small
amount of the charge ends up as revenue to the GLA for investment in
London's public transport infrastructure. The tax is in effect highly
wasteful,
and has created yet another mass of bureaucratic
administration.
Tinkering with the Economy
For the last few decades, the annual Budget proposals have all
been relatively uninspiring. There have been just a few interesting changes -
particularly so in the Lawson years, when taxes were slashed at the top
end of the scale. Broadly speaking though, Fiscal policy has remained largely stagnant,
hardly anything has been altered in the post war era. It has neither made
no difference whether the Conservatives or Labour (new labour as well as
'old') have been in control of matters. Economic policy has simply not changed all that
much. The level of overall taxation as a percentage of GDP has remained
remarkably consistent at around 35-45%.
As an onlooker, -as someone who
chose not to vote for this government, I guess I could be pleasantly
surprised at how well things turned out. Prior to 1997, the conservative
government tried to scare everyone into saying the economy would collapse,
employment would slump, and inflation would soar. To the pleasant surprise
of (I think) most tory voters, things have been somewhat okay.
New Labour
Overspending ?
Most people have not even the slightest idea of how much money the government
actually spends on each of the main departments. The latest budget
reaffirmed the spending totals outlined in the previous autumn. Projected
spending for fiscal year 2003-04 is projected at £456 billion.
Here we go with a little run down on how some of this money is spent.
Social welfare payments in the forthcoming year will probably amount to
some £133 billion, which represents 29% of the total budget. The health
service will likely spend £72 billion in 2003-4, Education £59 billion,
Law and Order £27 billion, and Defence £26 billion (data : Red book 2003).
Interestingly, the amount of debt interest paid to service the national
debt has fallen quite a bit in the
last few years since Labour came to power. Debt interest in 2003-04 is
expected to be around £22.5 billion, having been reduced from £29.7
billion in fiscal yr 1997-98.
Taxes - where does the revenue
really come from ?
No one likes to be taxed, but
most of us agree that as a society some form of collective taxation is a
useful way to fund things that benefit society as a whole (or maybe I am
wrong on this general belief ? ). Anyway, most people will
be surprised at just where the money is taxed.
Only 28.5% of revenue comes from 'income tax', the next biggest chunk
comes from N.I. contributions (17.4%). Over the last few decades VAT
(sales tax) has come to be a major revenue source for the Treasury. One
other notable tax is that of tobacco, which brings in around 10-11 billion
annually - and that is despite increasing illegal European imports.
Currently, the Chancellor is expecting that in this fiscal year 2003-04,
the government will collect £428.3 billion in receipts - of which almost
all comes from taxing the UK people. He is expecting to spend a total of
£456 billion - leaving a shortfall of some £28 billion. This gap is mostly
due to Brown's over-optimistic belief in the UK economy in last years
budget.
So, Brown has 428 billion or so to play with. It may sound a lot, but some
spending departments - particularly the Health Service and Welfare will suck up
every pound available - and still ask for more.
It is important to note that although tax revenue increases (almost) every year,
taxation levels overall have remained generally the same. Despite
what all current political parties claim, each UK government -whether it
be Labour/Tory have really not changed the
overall level of taxation that much.
Budget 2003 - The Highlights (or should that be lowlights? )
After trawling through the official Budget 2003 book released by the
Treasury (called the 'Red Book', yes it is red in colour), here are the main points...
-Child Trust Fund: every newborn from Sept'02, has a fund set up in their
name with between £250-500 being deposited (a one off payment, NOT annual) by the state. Cost :
£350million
-Fuel allowance increase for over 80's, £100 annual payment to all
households with someone over 80yrs. Cost : £180million
-Pensioners continue to receive their full social benefits for up to 52
weeks whilst in hospital (they used to be charged for food/accom. after a
number of weeks of inpatient care)
Cost : £30 million
-Anti VAT fraud measures : hoped to raise £225million
-Fuel Duty frozen : -£300 million , although rates will increase if the
oil price continues to fall, and world supply stabilises.
-Anti tax avoidance, income tax, foreign companies, aims to raise some
£880 million in 2003-4
-Landfill tax, increasing cost to companies, raise £100million
-Increase in social fund budget : Cost £25 million
-Tobacco duties, increased in line with inflation - no effect.
see note 5.
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That don't impress me much
So those were the main changes this Budget. There were a fair number of other
modifications in taxation policy, but of these most were essentially
insignificant in their size/effect, and do not merit any mention.
Q. What do you think of those nine changes ? Do they inspire you ?
Are you astounded with these changes ?
I do not believe you're thinking 'yes' right now, are you ?
With a total revenue of some £428 billion, Brown has tinkered will barely
a billion pounds - that is barely a quarter of 1%. Such a small amount is meaningless in
the grand scheme of things.
Brown called his budget 'Building a Britain of
economic strength and social justice'. The simple fact is, nothing of any
significance was changed. Neither did much change last year, - despite the
marginal increases in taxation. The sad fact is that the status quo is maintained every
single year. There is so much opportunity to change, simplify, and improve
the overall tax/spending structure, yet UK chancellors have consistently failed to
deliver.
I am tempted to spell out my own proposals for taxation/spending at this
point, yet I shall leave that for another day.... you can wait.
According to the UK Treasury website, Budget 2003 was about 'Building a Britain of
economic strength and social justice'.
Well I agree that the economy will remain relatively strong - at
least for the next few years, but as for 'social justice'. What the hell
is 'social justice' supposed to mean ? Are they referring to their amazing
£100 payment to households with someone over the age of 80 ? That measure
will benefit very few, and £100 is very little in any case. Yet the
current government continue to claim they are the party/government of
social care, I don'nt think so, do you ?
What astounds me even more is the utter lack of any 'Grand schemes'
planned for the nation.
Where are the great engineering projects, the new railway links, the new
transport hubs ?
Perhaps the only notable government funded project of late has been the
infamous 'Dome'. However, I don't count the 'millennium dome' as a 'grand project' - it was essentially a short term
tourist attraction, poorly conceived, and lacking a strategic long term
development plan. As testament to the current government's lack of vision, the
structure has stood empty for over 2 years and remains essentially
derelict.
Just think that more than a century ago the UK was being criss-crossed
with railway lines, thousands of miles of lines linking almost every major
area of population. A revolutionary 'underground' network of train lines
were also under construction in the London metropolis. The scale of the
construction was immense, it just seems to me that in those times the
leadership of the United kingdom had a real vision. They knew what they
wanted to build, and they damn well built it - no matter what the cost, or
how difficult it might be in engineering terms to construct. Engineering
is sadly the most neglected and overlooked sector in the UK. It seems to
me that people too easily forget that almost everything we rely upon in
everyday life, is due to the vision of the great engineers. I found it
pleasing recently that 'Brunel' was voted runner up in the 'best of
British people'. The UK needs a few new Brunels, a few visionary people to
overhaul the current outdated transport network. If I seem to keep coming
back to transport, that is because I see ability to travel as the most
important issue for the UK in the early 21'st century.
The really horrifying thing in my view is that not one of the current
mainstream political parties have a single plan for any new transport
networks. Despite the fact that they all agree the current road, rail, and
air networks are already at full capacity, each party has failed to
address the need for new capacity. Essentially, we are being told we will
simply have to live with the current transport network for the foreseeable
decades. Is this good enough ? Do the UK people really want to put up with
this saturated transport network until 2050 or even beyond then ?
How does the UK economy compare ?
I thought it would be interesting, as a side note to take a moment to
compare the UK economy to the USA.
Yesterday (11/04/03) the US Senate finally agreed to pass their 2003-04 budget. The
US Budget for fiscal yr 2003-04 is targeted to be in the order of some
$2.27 trillion. Yeah, that sure is some mighty large figure, even when you
consider it is
for the world's last remaining superpower. Note again the UK budget is for
£456 billion ( $US 716 bn)
The USA has 4.8 times as many people as the UK, which would give the UK an
equivalent budget of $3.4 trillion. The US budget is around a third less
than what we would expect - at $2.27 trillion. It is interesting to note
that although the UK spends 50% more in relative terms, actual GDP per
capita is far higher in the USA (see note 7.)
Debt Ridden Economies ?
It is quite well agreed that the USA is a relatively low tax economy.
However, the USA does have the most horrendous levels of state debt. The
US national debt currently stands at $6.47 trillion.
UK debt is £400.9 bn ( $629.4 bn dollars)
- which represents 38.6% of GDP (end. 2002). So the UK is actually in a
very strong position compared to the US. This may well surprise many
people, who do tend to think of the US as the stronger nation. On a per
person basis, the British resident is far more financially sound than the
average American.
Debt per person in the UK is in the region of £6500 ( $11,000). Lets
get this quite clear, EVERY single person in the UK owes somewhere in the
range of £6500. This compares to around £13000 for every American. The UK
economy is in a far better position than the US economy, to survive any
serious global problems. So, at least in terms of a debt burden, the
UK is relatively fine.
Brown's Lack of Vision
Our dear Mr Brown in his sixth budget, delivered the UK population very
little of note. There was nothing of any real substance, no grand plans,
no vision at all. As many economists and commentators have noted, the
Chancellor is now living on hope for 2003-04 and in the following 2 fiscal
years. Brown has been over optimistic quite a bit lately. He should
have adapted his 2003-04 spending plans, but he did not. Instead of raising
taxes and/or cutting back on his many spending pledges, he is gambling on
a bumper 2004-5 in order to make up for the budget deficit of almost £30
billion a year. If the 2.5-3.5 % annual growth in the economy does not
materialise, then there will be some structural problems for Browns
successor to deal with. Any decent chancellor would have amended their
budget to take account of such a budget gap, but no. Brown did not want his
government to appear as the 'tax raising' government - even though that is
what has happened over the last 2 years. It is somewhat shameful that yet
another chancellor has put his party politics ahead of the UK economy.
Browns reluctance to act now, may quite easily come back to haunt the
Labour party at the time of the next general election in 2005/06.
Brown has failed the UK people.
He has not addressed a number of the longer term issues. More than
anything though, Chancellor Brown has not proposed a single visionary
capital project in any of his six years as manager of the UK's finances.
Brown lacks vision, the UK deserves a lot better than last Wednesday's 59
minutes of un-inspirational spin filled speech.
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© 2003 Philip Calrissian
Last Updated :
25/03/04
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World Population : 6.28 billion as at April 12 '03
US/World population clock
Related Websites
HM Treasury : The UK
govt's finance dept.
National Statistics
: Govt. site, providing main UK stats.
Budget 2003 : BBC.co.uk : summary
CIA 2002 Handbook : UK economic data
Related Articles
Budget 2003 : UK Treasury Budget Homepage
* Highly recommended, a single
page that graphically depicts the 2003-4 receipts/spending plan for the
UK.
*Budget 2003
: Graphical Summary : UK Treasury
UK National
Debt : Summary chart on UK Govt debt.
USA National Debt clock :
Watch the US debt pile up !
USA Debt
history : US Treasury
UK Government
Spending
2001-02 Spending outcome (confirmed data, released 10/02)
Department |
Amount
£ billions |
Social Protection
(welfare) |
118.6
|
Education |
49.3
|
Health |
74.1
|
Transport |
11.5
|
Home Office (law and
order) |
23.2 |
Defence |
24.8 |
Intl Devp + intl
affairs. |
5.1 |
Trade/Industry |
10.8 |
Culture/media/sport |
5.8 |
Central govt. cost
|
8.3 |
Housing invest. |
4.5 |
Environ, serv. |
12.1 |
Agric/food/fish/forestry |
6.8 |
Debt Interest* |
22.5 |
*note : ( 1997-98 : 29.7 bn)
All data : see
HM Treasury
-----
UK Govt Capital Investment
Total Capital budget 2001-02 : 23.7 bn.
Main sectors of note...
Department |
£ billions |
Transport |
4.3 |
Health |
1.8 |
Education |
2.5
|
Defence |
5.8 |
-----
UK Government Income
2003-04 Fiscal yr (projected
revenue)
Total Income : £428.3 billion
* 1 billion = 1,000,000,000, i.e 1000 million
Inland revenue (55.1%)
Income Tax : 28.5 %
Corporation Tax : 7.2%
Social Security (N.I contrib) :17.4%
Other inland rev : 2.0%
-----
Customs and Excise (26.4%)
VAT (sales tax) : 15.5%
Fuel Duty : 5.4%
Other customs/excise taxes : 5.5%
-----
Other taxes : 8.6%
Business rates : 4.3%
Council Tax : 4.3%
-----
Other govt. Receipts : 9.8%
* note, totals do not add up to 100, due to rounding.
Notes on Economic Data.
1. All government projections are relatively accurate, although that depends if
you consider a plus or minus range of around 10 billion a relatively 'good
educated guess'. Usually, govt. spending is quite close to what is
intended. What remains difficult to predict are revenue receipts -
primarily income tax and VAT. Both of these types of tax revenue are
somewhat variable, and are very much dependent on the overall state of the economy.
2. UK Budget GDP forecast 2003-04 : 2.0 to 2.5 % growth.
2004-05 : 3.0 to 3.5 % growth.
It is interesting to note that
Brown has maintained his 'hope' that the UK economy will be storming ahead
in 2004. If this level of growth does not occur, then quite a problematic
spending/revenue gap will occur. The chancellor is banking on a strong
2004, if this fails to be the case, then some serious decisions in raising
tax and/or restraining spending will need to be taken.
3.
All Data Sourced : HM Treasury : 'Red Book', April 9' 2003
4. National debt.
UK debt : £400.9 bn ( $629.4 bn)
USA debt : $6.47 trillion
*note : 1 Trillion is 1,000,000,000,000
I have always wondered who we owe all this money too ? So far I have not
actually found out who we have been borrowing from over the last century. It
can not be the old
USSR, neither can it be any nation from either the African or South
American Continent.
That leaves the far east, the middle east, and Oceania - huh? Seriously, I
am quite confused as to who all this money is owed too, any ideas, please
mail me !
5. The change totals noted are
for fiscal year 2003-04, and are the indexed changes. For instance,
although actual £ revenue has increased by £170 million, this is offset
100% by inflation.
Most changes will cost less in the following fiscal years. For example,
the fuel allowance payment of £100 will be worth less next year - unless
they index link it to inflation - which is HIGHLY unlikely. This is a
classic, what was once a seemingly nice social benefit is left to be
eroded by inflation over the following 7-12 years. Unlike standard welfare
payments, these fixed sums - such as the winter fuel allowance, are
generally allowed to lose their original value as inflation erodes their
value. 6. UK-USA comparison
USA est. pop : 290.7 million
UK est. pop : 60.5 million (approx)
UK-US pop. factor of 4.8 times.
Current £-$ rate of 1.57
UK expenditure 2003/04 budget
of £456 bn ( $ 716 billion)
Debt (per person) UK: £6500 ( $11,000) approx.
USA : $22,300 approx
If the all things were equal comparing to population (x4.8), UK would have
$3.0 trillion of debt. Since America has a national debt of some 6.47
trillion, we can be quite secure in saying that on a per person basis, the
UK is the financially more balanced nation.
7. GDP per capita*
* This figure represents the average amount of 'work' in value terms
produced by each citizen on a nation in a given period -usually per year.
UK: $25,300 (2002 est.)
USA : $36,300 (2001 est) - the largest production per person in the world.
So, you could say that the average American person produces almost 50%
more per year than the average UK worker.
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