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Payless Growth And Debt Disaster For The UK

Politics / UK Debt Jan 21, 2015 - 04:12 PM GMT

By: Andrew_McKillop

Politics

The UK Economic Miracle
Only a few key figures are needed to understand how the"fastest growing economy in Europe" has effectively performed before and after the key date of 2008, whether under a pale pnk-hued New Labour government operating the Extend-and-Pretend mantra of borrow and spend, or the present pale blue Tory and Liberal Democrat governing coalition doing the same thing. The political and parliamentary  numbers game is at least as important as the economic numbers for mapping the UK's economic future. The present two-party system, in fact, could be the last truly UK-wide bicameral Westminster-dominated system and process that the UK has had, for the last several hundred years.


After May 2015, so-called Devolution Max (not Mad Max) will result in a probable 4-parliament system, unicameral outside England, with local parliaments in England, Wales, Northern Ireland, and Scotland. The Upper Chamber or Senate equivalent, the House of Lords, may or may not be scrapped, but would likely or certainly not be reformed and replicated for the 3 non-English parliaments.

Devolving power including tax-and-spend powers is one thing, but dividing and devolving the UK's national debt will be another kettle of fish.

Key issues outside the most basic issue of fiscal and economic power, such as defence and foresign affairs will also weigh heavily on the process of Devolution Max - one very simple- seeming issue will the renewal or not of majority-US Trident nuclear missile systems, presently based in Scotland. Apart from whether or not Scotland would pay its share, or any part of the estimated minimum cost of 30 billion GB pounds ($45 bn), the temptation to not renew them at all, simply to cut budget spending and growth of national debt will be strong. 

The present PM David Cameron has little choice but to propose a 4-parliament system for the UK. Responding to demographic and economic realities, as well as political pressures his administration has also repeatedly aired the subject of a possible 5th semi-autonomous UK region with its own assembly, in the north, north-west and centre of England. In this option or scenario for Devolution Max, an elected parliament only for London, south-east and south=west England would becomes another possibility. In that case we would be talking about a 6-parliament system for the UK!

In these different nations and regions, the role of "What economic future?" is of course a major subject for debate and conversation  - and driver of Devolution Max, Apart from Cameron's Tories, excluding many leading Lib Dems despite their membership of the coalition in power,and loudly criticised by the Labour party, Scotland's SNP, the Plaid Cymru of Wales, Sinn Fein of Northern Ireland, and also deeply criticised by England's UKIP and the Greens, Cameron's endlessly touted economic recovery has morphed into a "payless recovery".

The UK government's own economic statistical agency, its Budget Responsibility agency, the Treasury and other data sources all show that since 2008, the UK has had a low wage recovery of employment. For every 12 new jobs created since 2008, no less that 11 were categorized "low wage". For leading Eurozone economies such as Germany and France, the ratio is closer to 4-to-12 or 3 to 12.

To be sure, this has helped employers recruit and capped inflation in the UK as much as the global retreat of commodity prices and increased competition for developed country market share among manufactured products exporters. Also surely, the rapid fall of inflation - but not of debt - in the UK makes any rise of interest rates a theoretical subject for at least the next 2 years, and probably longer, due to both accumulated and new debt at the national, corporate and household levels, and the dearth of savings.

Higher Pay Impossible - Debt Disaster David Cameron rarely mentions data from the Treasury, of his colleague George Osborne, showing that only since 2010, the UK's national debt has grown by 290 billion GB pounds (about $450 billion). Claims by Cameron and Osborne that the deficit on government spending, or "borrowing requirement" of government could be reduced to "nearly zero by about 2018-2017", from its current 6%+ of GDP will require a massive reduction of spending of at least 30 billion pounds, starting immediately after the upcoming elections, and only  concerning the FY 2015-2016. After that, the draconian cuts in government spending - already accepted as inevitable and necessary by the Labout opposition, will have to continue. This will reduceg government spending by 2017, according to the UK Treasury, to "its lowest level since the 1930s". Now add Devolution Max!

Cameron and the Tories deny there is any necessity or obligation for UK employers, either public or private sector to keep pay low and keep annual pay awards to 1% - 2%, or fractions of 1% where they are simply not frozen. This is despite price rises in some key areas having risen much more than official CPI data shows, for 2012-2013. Very sluggish sectoral growth rates for labor productivity gains and new investment by industry, which is logical with very low pay rates compared with other developed countries on a job-for-job basis, also reduces the margin for awarding higher pay  and larger annual rises. As the UK employers' association the CBI says on a repeated basis, there is little or no marging for employers to raise salaries and wages - even if the wanted to!

Stoically denied by Cameron and Osborne, week after week in House of Parliament debates and weekly question times, the "pear-shaped economy" of post-2008 UK has become an economic fact of life. The UK has a small "revenue and wage elite" with no trickle down to a large and relatively fast-growing low wage majority of the working population. This of course is good for beating inflation, but its implication for economic growth in the next 3 - 5 years is negative, and makes the UK economy especially vulnerable to any international shocks or any rise of interest rates.

Both of these are very likely. The Eurozone, which takes around 60% of UK exports, is now in an openly perilous state where the next crisis is not a question of "if" but "when".Whwther it is the subject of "GRexit" or Greek e-zone exit, rising social tensions and terrorism fears, or increasing deflation in the e-zone, the outlook has to be negative. Likewise, global interest rates have to rise some time, simply because it is totally impossible for them to further fall!

For the UK's fiancial future of debt slavery the political canary in the coal mine has been tweeting on Twitter for a long time. Observers note the significance of the Labour opposition signing up to the most draconian New Austerity program, from May 2015, that the UK has ever had. To achieve the almost certainly impossible targetof zerogovernment borrowing by 2018-2019 (even by shifting date goalposts)this will mean cutting government spending by very close to 100 billion pounds-a-year within 4 years.  This austerity goal can be compared with any of the "ikonic spending" needs of government - whether it concerns the NHS health system, Trident and the defence sector, education, research and development, or anything else.

Devolution Max may be the easy (but disastrous) way out. Britain's future national-and-regional parliaments, if or when they have real fiscal and economic powers, will have every reason to play all the tricky tuness that exist in the Debt Denial songbook. Very possible in the Scottish case, the creation of a Scottish national currency - more on the Greek model than Swiss model! - might be one strategy for Scottish debt dilution and denial. British politicians have only themselves to blame for too many years of extend-and-pretend, and will be forced to make very hard choices.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2015 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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