Tuesday, April 27, 2010

I don't understand economics Pt. 3

The third in a very occasional series. (click here for part 1, part 2) There's a lot of hot air around concerning a hung/balanced parliament and the economic uncertainty that is feared as a consequence. One thing's for sure: the Murdoch press and Daily Mail have made instability much more likely by talking it up. A sort of 'second-strike' revenge if they fail to get the Conservatives elected, I suppose. If it's not "the Sun wot done it", then they're talking us all down to show what a rotten lot the others are.

Anyway, one of the key points of the argument is that "business leaders" (whoever they may be) are concerned that a clear deficit reduction plan is in place - whether spending cuts, tax rises or some combination of the two. What no-one seems to be addressing is that the deficit, originally expected to be £178 bn was expected to be £167bn by the time of the last Budget. On top of that, major companies seem to be rather more profitable than was expected - BP and, surprisingly Lloyds Banking Group. That means extra tax receipts and, potentially a profit for the exchequer when Lloyds is eventually returned to the private sector.

Ok, I haven't got a degree in economics (but neither had Alastair Darling or George Osborne last time I looked), but those figures mean that at the very least we're in an £11bn better position than we thought (and also in following years). It may even prove to be slightly better than that. It's still a huge task, but the graph seems to be going in the right direction.

So even if there are a few days delay in sorting out exactly who does what job in the next Parliament, there's no reason for the roof to fall in. We just need the papers who are so keen on patriotic headlines and "backing Britain" to show a bit of genuine support for their country and to stop sowing seeds of doubt in the minds of investors and markets.

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