The FT reports that we've received a surge in tax revenue this January. Income tax receipts were 15% higher than in Jan 2007 and corporate tax receipts were 23% higher than in Jan 2007. January is the period when businesses pay one quarter of their taxes, and when individuals who complete their self-assessment forms pay what they owe to the revenue. In addition, the ONS had to revise down their estimate of government spending (the govt has been keeping a very tight rein on this as public sector workers will attest). All of which is good news for the public finances.
The thing to understand about tax is that people only pay it on profits or income earned, and only after they've exhausted their allowances (and everybody checks their allowances avidly). If you don't have a job or don't make a profit, you don't pay tax. Tax revenues are therefore a very good gauge of how well the economy is doing, because no one has any incentive to pretend they earn/have made more profits than they actually have, because then they pay more tax. The surge in tax revenue proves that the period 2006/7 was a very good one for UK plc and the corporate tax shows 2007/8 is pretty good too.
The question is what happens in 2008/9. It's still not clear to what extent American problems will affect the UK. The financial sector has tightened their lending criteria quite sharply, but on the other hand employment continues to rise and unemployment continues to drop. The claimant count has been falling for 16 consecutive months and was 794,600 in Jan 2008, which is the lowest since June 1975. The number of economically inactive people also continues to drop (those classed as economically inactive are students, housewives, people who've retired early, the unemployed and the disabled). In order for there to be a proper blowout in the property sector, you either need massive oversupply or massive unemployment. We have neither.
In a way all the economic doom and gloom in the newspapers might actually be to Labour's benefit. It lowers expectations and if it makes people take advantage of the good job situation to earn more and put their financial affairs in order, it should stand us in good stead in the rest of the year, and if we guide the country through this patch, the results will contrast sharply with the darkness of the expectations.
The Tories have been prancing about town trying to claim the country is experiencing a return to the 1970's. Of course no-one wants to see a return to the 70's - or the 80's with it's grim recessions. The Tories electoral message is "it's a return to the 70's, therefore the country needs to elect the Tories". Of course the corollary to that is "if it's not a return to the 70's, then why elect the Tories?" Especially if it is clear that they can't even tell the difference between the dark period of the 70's and 80's and the conditions in this new Labour century. If we weather this storm even while the USA struggles, it will be the second worldwide slump New Labour has seen off (the first being the world recession of 2001). If we go into the next election with twelve consecutive years of growth under our belts Labour deserves to be re-elected - according to the Tories.
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4 comments:
To john, who commented on the snowflake image but probably meant to comment on this post - I shall repost your comment here, and then answer it. This is what you said:
"It may be the first year ever under New Labour that they actually stay within their borrowing plans.
On the other hand if the economy is doing so well why have they needed to borrow so much?
John"
It's quite untrue to claim that Labour has never stayed within it's borrowing plans. Labour came to power in May 97 inheriting a budget deficit from the Tories and promptly started paying it down. The process of paying down the deficit means that you reduce borrowing. And when you are in surplus you are actively paying down the national debt. Here are the figures from 1995 onwards:
http://epp.eurostat.ec.europa.eu/portal/page?_pageid=1996,39140985&_dad=portal&_schema=PORTAL&screen=detailref&language=en&product=STRIND_ECOBAC&root=STRIND_ECOBAC/ecobac/eb060
Negative figures indicate deficit as % of GDP, positive figures indicate surpluses.
1995 -5.9%
1996 -4.2%
1997 -2.2%
1998 -0.1%
1999 0.9%
2000 3.6%
2001 0.6%
2002 -1.9%
2003 -3.3%
2004 -3.4%
2005 -3.3%
2006 -2.7%
As you can see the Labour record is an improvement over the Tory one. The worst Tory year was actually in 1992 when they had a budget deficit of 7% of GDP - this shocking result happened at the time when one David Cameron was "helping" at the Treasury.
Why has the deficit increased since 2002? There was a world recession in 2001. UK growth slowed (but the economy still managed to grow) and this affected tax receipts and the Treasury increased borrowing to compensate. Growth in the UK also slowed in 2005 following the interest rate rises in 2004. However since then growth has picked up strongly. There is always a lag between growth and tax receipts, not least because self-assessment taxes are paid 10 months after the tax year in question has ended.
In both in GDP growth terms and the public finances, the Labour record is superior to that of the previous Tory administration.
You mean that a Tory troll doesn't know what he's on about?
Whatever next?
"The claimant count has been falling for 16 consecutive months and was 794,600 in Jan 2008, which is the lowest since June 1975."
"The Tories have been prancing about town trying to claim the country is experiencing a return to the 1970's."
Maybe they're on to something...
Tom, I think the Tories were kinda hoping it was a repeat of the late 70's, esp 1979!
In a way this world turmoil is a good thing. The nation was beginning to take uninterrupted growth for granted and to assume that "anyone" could achieve it, and Labour wasn't getting the credit they should have got for what has been a remarkable achievement. The evidence from the USA which has a conservative administration is that "anyone" can't achieve a good economy, particularly if they are conservative.
This scare makes people realize that it's difficult to produce growth year after year, and only exceptional governments manage it, and if the Labour govt manages to protect the UK while they have a very bad time in the USA, it should bring home to the electorate just how lucky they are to be governed by the centre-left.
It's all to play for, and the govt will strive mightily to try to ensure that things go well in the UK. It will be very tough, but if they pull it off, they DESERVE glory and re-election.
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