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I enjoy watching Question Time on the BBC each Thursday. It can be amusing and entertaining usually because of the crass stupidity of some of the panellists.

I don’t object to politicians and celebrities displaying their ignorance and political bias as at least it helps us make an informed opinion about them, but sometimes they reach astounding heights of crassness. Such was the case last night when the programme came from the fair city of Glasgow.

On the panel was Jim Murphy, Secretary of State for Scotland. In that post he has been involved in negotiations to secure the takeover of troubled bank HBOS (Halifax Bank of Scotland), which critics say could lead to major job cuts in Scotland. Murphy has no financial experience and in his short career as a minister (2 years) he has yet to stay in any post long enough to work out more than the way to his office. His only qualification for his present post appears to be that he is Scottish (though he grew up in South Africa). He is not well regarded by the Scottish business community who last week accused Murphy of actively discouraging attempts to invite a range of bidders for HBOS but instead force through a deal with Lloyds TSB (which normally would be disallowed under competition law).

All the way through the programme Murphy showed himself to be a political animal only parroting the party line about every subject under discussion and clearly unable to deal with points raised about which he had not been briefed on by his researchers.

Nowhere was this more evident than in his answer to a question about whether Gordon Brown wanted tax cuts now before calling a general election next year. This question expanded into the issue of whether you could cut taxes now without having to raise them in a couple of year’s time.

In his attempt to justify the view that tax cuts now wouldn’t mean increased taxes later he was supported by journalist Melanie Phillips. Ms Phillips having told us she was no expert in finance then went on to argue that the points put by Philip Hammond, shadow chief secretary to the Treasury and a man who used to advise the World Bank before he entered politics, were total rubbish. Even the other two panellists (Lib Dem Tavish Scott and Scot Nat Nichola Sturgeon) found this a hard to take.

So what are the real facts? Consider the following:

Annual public borrowing is set to rocket towards £120bn over the next two years – far higher than City forecasts. Treasury officials say that this will cause a “mammoth shock” to the economy and tax revenues will fall far below previous government forecasts.

The consensus forecast is for borrowing to hit 6 per cent of national income, or £90bn, next financial year, but the Treasury expects the rate of deterioration to continue apace, suggesting the budget deficit will hit 8-9 per cent of gross domestic product over the next two years, close to £120bn – three times the European Union’s deficit limit.

Such high levels of borrowing, unseen even in the dark days of the1970s, will automatically push public sector debt as a share of national income well on its way to 60 per cent, a figure that dwarfs the current limit of 40 per cent.

Official figures released this week show revenues declining at an increasing rate as this financial year progressed. Corporation Tax revenues were down a quarter in October compared to a year ago.

The economy is only now entering recession and with tax revenues set to fall further, public borrowing and debt figures will rise much faster than most economists have forecast.

Mr Darling has insisted that he is not simply interested in a fiscal stimulus but also in medium-term sustainability for the public finances. Treasury officials say this will mean ensuring that once the economy recovers fully, public borrowing must no longer fund government spending on day-to-day items. This target is unlikely to be met until well into the next parliament. To meet this condition, the Treasury will have to announce credible plans to cut public borrowing from 8 per cent of GDP to about 2 per cent.

Spending restraint alone seems unlikely to meet that target, leaving Mr Darling with little choice but to announce deferred tax rises – which would kick in when the economy recovers. That might reassure the markets but would reinforce claims by George Osborne, shadow chancellor, that Mr Darling is about to unleash a “tax bombshell” primed to detonate after the next general election.

But judging by Mr Murphy’s performance on last night’s Question Time – unless he has gone seriously off message, unlikely as he was a Whip for 5 years – the government are in denial that tax increases will need to follow in a few years time.

So what will Mr Darling do on Monday? A responsible Chancellor should announce a package of tax cuts, increase borrowing, and schedule tax increases, but one being forced by political expediency and a desire to win an early election will just announce the cuts. We will just have to wait and see.

One Response to “A Government in Denial?”

  1. Leo says:

    I see that the chancellor and Gordon have come up with another uninspired tax plan http://www.iomtoday.co.im/news/PreBudget-report-reveals-plans-for.4725151.jp

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