Budget reveals weakness of the UK economy – the Lib Dem reaction to the budget

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Responding to the Budget, Acting Leader of the Liberal Democrats Ed Davey said:

This Budget reveals the UK economy was alarmingly weak even before Coronavirus. The Government is desperate to blame anyone or anything but the reality is that it’s the Conservatives’ Brexit which is costing Britain’s economy dearly.

Whilst the Government is taking some action to deal with the Coronavirus, after five years of Tory governments the NHS and our social care sector are chronically under-funded, under-resourced and under-staffed, just at the moment we need them most. Nothing is being done to fill the care sector’s staffing needs here and now.

With COP26 around the corner this government has fundamentally failed to show any real global leadership on dealing with the climate emergency. Rather than create a green infrastructure plan for the future, Ministers have hidden their infrastructure strategy because it was not compliant with tackling the climate emergency and getting to net zero. The Tories are investing too much on roads and nowhere near enough money on electric cars, charging points and insulating homes.

Here are some other Lib Dem reactions to the Chancellor’s speech:

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  • Adrian Mark Sanders 11th Mar '20 - 4:59pm

    Local authorities collect the Business Rates for their area and the money is credited to a central Government pool. It is then redistributed to councils in line with a population-based formula.

    So if a Chancellor decides to reduce the amount of business rates that need to be collected there will be less to redistribute to local government.

    The Chancellor announced today that “tens of thousands of England’s retail, leisure and hospitality firms will not pay any business rates in the coming year”. This is good news for businesses although some may find other factors overwhelm this support in the next financial year.

    At the same time It could be disastrous for local government and residents if councils have to make up the short-fall by increasing council tax, charges and cuts to services. Many councils have nothing left to cut and residents are already angry charges, cuts to services and the level of Council Tax they have to pay.

    So can the Chancellor show us where the money will come from when it’s no longer in the business rates pool?

  • Barry Lofty 11th Mar '20 - 5:09pm

    Minura Wilson MP/Daisy Cooper MP, Well said I agree wholeheartedly with your statements

  • I would have thought “Budget IGNORES weakness of UK economy” would have been a more accurate headline. But I do agree that much of the weakness in our economy is a result of the self inflicted wound that is Brexit.
    On the other hand, it will be interesting to see how a borrow to spend policy will work out. A number of posters on this site have dismissed traditional notions of a balanced budget. Now we are going to find out.

  • Barry Lofty 11th Mar '20 - 6:04pm

    Sorry for not checking the spellchecker with regards to Munira,s name!!!!

  • Peter Martin 11th Mar '20 - 7:01pm

    Daisy Cooper MP asks:

    “one *tiny* question unanswered…. where’s all the money gonna come from?”

    Can someone tell her, please ? 🙂

  • Peter Martin 11th Mar '20 - 7:03pm

    @ Alex B

    “Am I missing something?”

    In a word: yes !

  • The magic money tree Peter. Which works fine while the world believes in the value of the leaves it sheds, but if people lose faith well the poor tree will go the way of the Zimbabwean and Venezuelan magic money trees which no longer bare fruit people believe in. As you know you can print as many pounds as you like, but you can’t make the world believe they have any value if you shred your reputation. The major problem you have is under Depeffle and the rest of your (and they are your) brave leadership reputation and faith are likely to become tarnished and hence the magic money tree will be less useful.

  • Go on Peter. As an authority on debt markets te us what it is.

  • Charles Smith 11th Mar '20 - 8:10pm

    Britain launched a 30 billion-pound ($53.3 billion Cdn) economic stimulus plan just hours after the Bank of England slashed interest rates, a double-barrelled package aimed at warding off the risk of a coronavirus recession.

    Prime Minister Boris Johnson’s new finance minister, Rishi Sunak, said the economy faced a “significant impact” from the spread of the virus, even if it was likely to be temporary.

    “Up to a fifth of the working age population could need to be off work at any one time. And business supply chains are being disrupted around the globe,” Sunak said in an annual budget speech to Parliament on Wednesday. “I will do whatever it takes to support the economy.”

  • Peter Martin 11th Mar '20 - 8:16pm

    @ AlexB,

    Well its difficult to know where to start! But why do you think “We are reliant on the kindness of foreigners”? And why do you think foreigners want to be kind to us?

    It’s true that foreign central banks like the Bundesbank do buy lot of Govt gilts. But kindness doesn’t come into it. The Germans, like the Danish, the Chinese and many others like the idea that they run a large export surplus with us. It makes them feel good to give us lots of goods and services and take our IOUs in return. I’m not quite sure why but they do.

    That’s why they give the Govt our money back. So they can deficit spend it into the economy and then we can continue to buy lots of their stuff.

  • I think the budgetary stance is broadly right at this time. With the BofE out of room to reduce interest rates any further than 0.25%, there has to an immediate fiscal stimulus in the face of the global economic shock that is upon us. Increasing taxes in the face of a looming recession would only make things worse.The £30 billion stimulus is about 1.5% of GDP so not excessive by any means.
    Government borrowing rates in bond markets have been at historic lows for a decade now. In some markets real rates are negative, meaning you have to pay the government for the privilege of lending money to them. It is prudent to tie in lending at these rates, particularly to fund capital spending on public assets that will last long into the future.
    No one can say with any certainty if and when these conditions may reverse. A spike in oil or commodity prices can set off an inflationary spiral forcing global interest rates up in response and these rates may no longer be available.
    Adrian Sanders point is well made. Local government services have borne the brunt of austerity measures for the past decade with council tax freezes and big cuts to central funding. The business rate relief for small business could have been delivered by adopting the LibDen Commercial Landowners Levy that would have transferred liability for the tax for Landowners rather than the business tenants occupying the premises. This would have left council funding intact and landowners would make the decisions to offer rent reductions or rent free periods to keep tenants in their property.
    The large numbers of self-employed in the gig economy will need faster help than Universal credit can deliver – perhaps with hardships grants that can be delivered within 5 days as suggested by Katharine Pindar on another thread. If it is left too late we may well have to follow the example of Hong Kong and send out a £1.000 cheque to every adult in the country to stave off a deep slump and keep doing it until the economic decline is stopped.

  • The budget is taking up a lot of media time. I TRUST WE WILL NOT FORGET TO COMMENT ON CHRIS GRAYLING TAKING OVER THE POSITION DEALING WITH THE RUSSIAN PAPERS’ A Boris yes man put in position to limit the damage for Johnson and Cummings.

  • Allan Brame 12th Mar '20 - 8:10am

    Adrian Sanders “So if a Chancellor decides to reduce the amount of business rates that need to be collected there will be less to redistribute to local government.”

    Much as I hate to defend the Conservaties, the section of the budget on Business Rates does address this:
    2.195 Local authorities will be fully compensated for the loss of income as a result of these business rates measures.

  • Fiscally, this is now firmly a centre-left govn, the LibDems should be dancing in the streets or at least whispering sweet-nothings on how to spend all this extra money. It is not a Labour wannabe Marxist govn, sterling actually went up a tiny bit though now it has gone down a little bit, so overall probably going to get away with it. Yes, it totally ignores the drop in revenue due to Brexit…

    Whilst fiscally leaning leftwards, at least at the moment, the govn is firmly right wing on law and order plus immigration… might well be a vote winner down the line as long as the economy does not disintegrate due to the virus.

    In many areas the house price cycle is coming to a pre-peak point when prices might double, helped along by that interest rate cut and terrible returns on deposits plus what looks like another stock market crash. Interesting times!

  • John Marriott 12th Mar '20 - 8:52am

    I was always taught to live within my means. What was it that Mr Micawber famously said? Well, it only goes to prove the Germans right, when they say that we Brits live on tick (“Die Briten leben auf Pump”).

    Mind you , we tried the austerity route back in 2010 and Local Government, of which I was an active part back then, bore the brunt of public criticism as Central Government used us as a kind of human shield. Yes, it made sense at the time as a short term measure; but, quite frankly, it went on too damn long! Thanks a lot, George and Danny.

    We could have gone down the public works route back then à la FDR but we chickened out. We appear now to have found the courage actually to knock on the world financiers’ door with the begging bowl. Besides, judging by the way we shielded them back in 2008, those bankers and financial institutions owe us one! Ironically, that’s exactly what Labour planned to do and were excoriated in the run up to the 2019 GE.

    I suppose I could be selfish and say that I will be long gone before we face the prospects of paying our about to be massively increased debt off. However, as someone who continues to acknowledge that you don’t get “nowt for nowt”, I am nevertheless worried. Surely direct taxation will have to rise eventually, especially as it looks if all sides now agree that the crisis in Social Care cannot be solved by the private sector alone.

    But, hey ho, Spring’s hopefully around the corner and we’re likely to be going into lockdown pretty soon, which won’t bother me unduly as I’ve resurrected my model railway layout for the grandkids, lying dormant in the loft for the best part of 20 years (that’s the layout not the children!), so, provided my wife and I stay healthy and the government and local authority keep paying our respective pensions, we can face anyway. What a selfish pair people must think we are! When you get to our age, and have kept your sanity and a bit of cash not that much fazes you.

  • Peter Martin 12th Mar '20 - 11:19am

    @ Joe Bourke,

    “No one can say with any certainty if and when these conditions may reverse…….an inflationary spiral forcing global interest rates up ……. these rates may no longer be available.”

    If inflation does rise then, yes, it is possible that nominal interest rates too would rise. It would be unfair to savers if they didn’t. It wouldn’t mean they would be any better off though. Conversely neither would borrowers be worse off. It’s real interest rates that matter. Not nominal rates. Over the course of all our lifetimes real interest rates have hardly ever been positive and that’s unlikely to change any time soon.

    @ John Marriott,

    “I suppose I could be selfish and say that I will be long gone before we face the prospects of paying our about to be massively increased debt off.”

    If you buy some premium bonds, or national savings certificates or government gilts then you’re increasing the size of the National Debt. If the Government decided to”pay it off” they’d give you ££ in exchange. You can have those ££ anyway. Anytime you like. So what’s the problem? Are you really suggesting that Govt should force people to swap their small interest bearing bonds for cash?

    “Well, it only goes to prove the Germans right, when they say that we Brits live on tick (“Die Briten leben auf Pump”).”

    Yes they do say this. German people are probably much better engineers than they are economists. They think everyone should be like them and export much more than they import. They don’t seem to grasp that they need some countries, like us, to import more than we export. That gives us what they see as a debt problem. Someone in the UK has to borrow to cover the difference.

  • Barry Lofty 12th Mar '20 - 2:01pm

    For all the fear of voting for Jeremy Corbyn during the election because of his extravagant promises on spending and what it would do to our economy it seems they have got just what they didn’t want when they voted for this present government, rather ironic really!

  • Alex B writes “We are reliant on the kindness of foreigners” paraphasing Mark Carney and the Bank of England https://www.reuters.com/article/us-britain-boe-banks/bank-of-england-says-uks-reliance-on-kindness-of-strangers-for-finance-is-rising-idUSKCN1GS12P
    “Over recent quarters (the current account) deficit has been increasingly funded by capital inflows – rather than sales of foreign assets by UK residents – thus increasing the UK’s reliance on the confidence of foreign investors,”
    Since the financial crisis the yield on gilts, the benchmark ten year government bond has fallen from around 4.5% to under 0.5%. In America they are below 1% and in Germany a negative -0,6%. While Britain’s stock of government debt may be high the cost of servicing is low. In 2018-19 the net interest bill was 4.5% of tax revenues (1.7% of GDP). Demand for gilts from foreign reserve managers (particularly from East Asia and the Middle East) and domestic pension funds has been high for two decades pushing down yields. Sterling’s share of global reserves has risen from under 3% in 1999 to around 4.5% now and have benefited from the UK’safe haven status. Domestic pension funds and Insurance companies hold around a third of the stock. A lot of institutional investors are constrained in what kind of bonds they are allowed (or need) to hold. They may be barred from holding corporate bonds or bonds that are not rated investment grade. Or they may need to hold bonds of certain maturities for regulatory reasons. Banks face capital charges on corporate bonds, so prefer to hold government bonds. Insurance companies need long-term bonds. Foreign reserve managers hold mostly short-term bonds. It is in this last category that the UK can be said to be “reliant on the kindness of foreigner.” Things can of course change. The higher its debt, the more vulnerable a country is to shifts in market sentiment. However. the average maturity of UK debt at 15 years means not much of it needs to be refinanced each year and this provides an insulation against any sudden move in global interest rates.

  • Given that the budget is being funded by massive borrowing, the LDs can now safely hammer the Conservatives as being “the debt party” and fiscally reckless – because that is exactly what they are.

    Other European countries, facing the exact same challenge as us from the Coronavirus, aren’t engaged in such reckless borrowing because, of course, the Conservatives’ borrowing and spending is primarily being done to disguise the impact of Brexit.

  • Peter Martin 13th Mar '20 - 7:42am

    @ JoeB,

    Your comment (or ramble?) lacks clarity to say the least. I’m sure you know as well as anyone that international financiers and bankers don’t buy up UK govt gilts out of the kindness of their hearts but you don’t want to admit it. You say:

    “Demand for gilts from foreign reserve managers (particularly from East Asia and the Middle East) and domestic pension funds has been high for two decades pushing down yields.”

    I notice you don’t say “kind hearted foreign reserve managers” ! Yes the demand has been high but it’s more the demand from the BoE QE program which has pushed down the yields as I’m sure you know too. But you don’t say if this “high demand” is a good or bad thing!

    If anyone buys a government bond they are adding to Govt debt. So if they are doing that, many people would say it’s a bad thing. So maybe not so “kind hearted” after all? These purchases cause our capital account to be in surplus and therefore our current account to be in deficit. The two have to add to zero. Again many people would say that can’t be a good thing. Or are “many people” wrong?

    There is obviously a lot of confused thinking about on the nature of our supposed “debt” ! We do need some clarity of thought to dispel it.

    @ Paul R,

    I often use the phrase the UK government is not a household. That is true. But it’s not true of the euro using countries. They, with the possible exception of Germany, aren’t in control. Their economics is much more as you see it, wrongly, for the UK government.

    They don’t have the same monetary and fiscal tools at their disposal. The comparison you make with the European countries, therefore, isn’t valid. On the other hand, a comparison with Canada or the USA would be.

  • @Peter Martin – Your comment is just wrong. The EU countries are in control and all of them routinely borrow on a day-to-day basis. The aren’t engaged in panic borrowing because Brexit either isn’t an issue for most of them, or a minor inconvenience at worst.

    And going on about the fiscal and monetary tools at the disposal of our Conservative government is idiotic given that, under the Conservatives’ tenure, Sterling has declined sharply against the Euro, AND our national debt had already massively increased before the current “drunken sailor” borrowing announcements.

  • Peter Martin 13th Mar '20 - 10:25am

    @ Paul R,

    You really need to check your facts. The European Central Bank has full control of monetary policy for the euro region. For an single currency it can’t be any other way. The US Fed has full control of monetary policy for the US dollar. The BoE for the pound etc.

    Fiscal policy, for the euro region, is constrained by both the rules of the Stability and Growth Pact and the European Fiscal Compact. The rules don’t necessarily follow from a single currency but they are imposed, and enforced by the threat of fines and other sanctions, by EU treaty obligations.

    These rules don’t mean that the EU euro using countries can’t borrow at all, but they do mean, possibly, that what the present UK Govt has in mind wouldn’t be allowable. Why ‘possibly’? It’s because there is no way of knowing whether extra spending by government will increase the size of Govt’s deficit and so the National Debt. You and I know that if we increase our spending we’ll affect our balance sheets. That’s because we are households, in economics jargon, with our incomes almost entirely independent of our spending.

    Not so for Govt. Its income is dependent on its spending. If it cuts its spending it will likely cut its income too, as the economy slows. Conversely if it increases its spending it will likely increase its income as the economy speeds up. But nothing is certain. When there are strong external factors at work, such as now with both Brexit and the coronavirus, it is impossible to know in advance just what will happen. It depends on whether you and I (and others!) feel confident enough to go out and spend, and so increase Govt’s taxation revenues, or whether we feel we should be more cautious and save and so increase Govt’s debt levels.

  • Peter Martin. The B of E finances itself via debt auctions. To make them successful, they require non resident support. That means the terms have to be attractive. I know that you like to respond by belittling others, but have you ever studied monetary economics like me?

  • Government finances are not like a household, but they are akin to a large corporation that issues shares. A large company does not need cash to acquire the resources of another company, they can simply issue their own shares to the shareholders of the other company and cancel the existing shares of the company they acquire. They can also use their power to issue shares to recruit top engineers and managers. Amazon is among the largest companies in the world and has never paid a dividend. Microsoft never paid any dividends until recent years. A large company can issue shares and borrow freely in the markets, but it must invest the money well and maintain a competitive position to maintain the value of its shares.
    When a company’s borrowings become a large proportion of its market capitalisation, its share price becomes more volatile and vulnerable to market swings. When a company fails its share price plummets, its assets and market share are acquired by other companies and its staff moves on to jobs with better-managed businesses.
    When a country spends and borrows it too must invest the proceeds well and maintain an Internationally competitive position. When a country’s debt service costs (excluding its own central bank holdings) become a large proportion of its tax revenues, its currency becomes more volatile and vulnerable to swings in the foreign exchange markets. When a country fails, its currency devalues. Investors will seek to acquire real assets (land and capital equipment) and spurn government bonds and its most talented and productive citizens will begin to emigrate,
    A country can have a high level of government spending or a low level and still have a high per capita standard of living either way. It is not the level of state spending that determines standards, it is how efficiently and productively resources (human and physical) are deployed.

  • Much of the critique from Ed Davey is not about borrowing levels or much needed short-term fiscal stimulus. It is about what is not in the budget rather than what is e.g. “Nothing is being done to fill the care sector’s staffing needs here and now” and “this government has fundamentally failed to show any real global leadership on dealing with the climate emergency.”
    These are valid criticisms that will need to be addressed in a comprehensive spending review that will now be undertaken in the context of lower growth as a consequence of the economic impact of both the coronavirus and a potential no-deal Brexit.

  • Peter Martin 13th Mar '20 - 2:18pm

    @ Alex,

    I don’t know why you think I belittle anyone. In any case debt auctions are normally carried out by Govt, ie the Treasury or an appointed agent, not the BoE. Although there is no reason why the BoE couldn’t act as that agent. The BoE has, in its own right, been more active as a buyer of Govt debt in recent years than a seller.

    Presumably you mean the sale of Govt debt requires overseas, (ie nonresident) support? I’d suggest you look at this from a different angle. If other countries wish to run a trade surplus with us then they are going to end up with more ££ than they wish to spend. If they don’t use them to buy gilts, which still do pay a tiny bit of interest, what else are they going to do with them?

    This is how the BoE say they make their money:


  • Peter Martin 13th Mar '20 - 2:58pm

    @ Joe B,

    “Japan is the experiment for MMT”

    Japan is an experiment for MMT. Japan is just one of many. Any country with a currency in fact. MMT doesn’t say that large deficits are always necessary or even always desirable. Just that sometimes they are inevitable. The euro is another experiment. MMT says that’s not sustainable in the longer term unless the EU develops a single govt with a common taxation system and a worked system of fiscal transfers to replace the present fiction of repayable loans.

    “As global interest rates return to historic norms…..”

    Maybe they will. Maybe they won’t. It depends what governments want. They haven’t alighted on their present ultra low levels because of some random process. They are as they are as a deliberate act of policy. German and Swiss interest rates, for instance, are negative because the German and Swiss Governments don’t want an influx of foreign money. It would be inflationary and damage their export led economies. The UK govt wants low interest rates to stop land and property prices from crashing and taking down the economy too.

    “International financiers and bankers don’t buy up UK govt gilts out of the kindness of their hearts…… ”

    No. Whoever suggested that silly notion?

    “….They maintain a geographically balanced portfolio of sovereign bonds and adjust their investments based on real yields and currency risk.”

    To some extent this is true. It certainly should be true. It’s also true that if China wants to run a trading surplus with the USA and UK then it has to instruct its central bank to buy US and UK bonds. Whether the bankers think they are or aren’t a good risk is irrelevant. It makes some sense for a developing economy to do this to build up its foreign exchange reserves. It makes little sense for developed economies like Germany, Denmark, Switzerland, and Singapore who generally have more foreign exchange reserves than they know what to do with.

  • Peter Martin 14th Mar '20 - 8:28am

    @ Joe B

    “…….currency, as a commodity, does not generate an increased standard of living.” JB 13th March

    “Increasing taxes in the face of a looming recession would only make things worse.The £30 billion stimulus is about 1.5% of GDP so not excessive by any means.” JB 11th March

    You seem to have changed your opinion rather a lot in just a couple of days. What is the £30 billion stimulus but the injection of currency, and therefore spending, into the economy? And if isn’t going to do any good, what’s the point of doing it?

    The first part of your last comment is a description of what is sometimes known as Neo Keynesianism. It’s better described as Not Keynesianism IMO! It works temporarily but there always a requirement for ever lower interest rates to prevent the private debt bubble from bursting. When they get to zero, or even negative in some countries, then the game is up for this particular brand of economic hocus pocus.

    The only option for government now is to control aggregate demand through fiscal measures. Some economists, like Pavlina R. Tcherneva, would say that governnment should set interest rates at zero and leave them there. I’m not sure it matters whether its 0%, 1%, or 2% but the important decision is that governments should decide what they want them to be and stop fiddling around with them.

  • Peter Martin,

    the important point about fiscal or monetary stimulus is to remember that stimulus is short-term pump-priming not a substitute for the pump itself i.e. the real economy.
    It is not the monetary stimulus itself that generates increased standards of living it is the stimulating impact it has on regenerating household spending in the face of economic shocks that stall or impede economic growth. The impacts are short-term. The purpose is to guide the economy back onto a self-sustaining course where supply and demand come into a closer equilibrium. As the economy returns to operating at or near full capacity then stimulus has to end.
    It is always a mistake to think of fiscal or monetary stimulus as a substitute for structural improvements in the form long-term investment in physical and human capital, innovation and productivity improvements. Something Japan learned or should have learned a long-time ago.

  • Peter Martin 14th Mar '20 - 6:02pm

    @ JoeB,

    “The purpose is to guide the economy back onto a self-sustaining course where supply and demand come into a closer equilibrium.”

    How do you know the economy is “self-sustaining” and there is anything like an “equilibrium”?

    Steve Keen often makes the point that the assumption of equilibrium is a major failing of conventional economics. So, instead of one correction which puts everything back on the rails, maybe you should consider the possibility that there aren’t any rails and we need lots of corrections to keep the economy moving as we would like.


    Have you discussed the BoE’s policy mandate with Pavlina R. Tcherneva? She’ll probably say that it’s a mistake to give any central bank the responsibility which is rightfully one for an elected government. She might even advocate abolishing the BoE and handing over its function to the Treasury.

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