Happy New Year…

… and welcome to 2010 the year of the economic recovery!

Ok, I can’t say for sure that the economic recovery is underway but public confidence definitely seems to be improving. Just 2 months ago I was writing about fireworks being a good economic measure as people will be reluctant to spend money on something they are going to set fire to and watch shoot off into the sky when times are tough. Back in November I saw very few fireworks, but last night there were plenty to welcome the new year.

It seems people are desperate for the recession to end and go back to the old borrow and spend model we had pre-boom. Further evidence of this can be seen in the number of people that were queuing into all the major shopping centers today looking for bargains. Many say more people than ever are flocking to these shrines of consumerism to take advantage before VAT returns to 17.5% but my personal opinion is people are desperate to shop and the sales means they can do this guilt-free.

Chancellor to announce ‘temporary refund adjustment’

It’s common knowledge that the Treasury has to deal with the widening gap between it’s tax revenues and public spending in the pre-budget report this week. And with an election coming next year Alistair Darling will want to avoid the phrases “spending cuts” and “tax rises” in an attempt to retain some votes next summer. But the Chancellor still needs to act now as government borrowing already stands at a worrying £175bn.

Which reminds me of a recent Simpsons episode titled “Bart to the Future” where Bart sees a vision of his future, with Lisa installed as President trying to rescue America from it’s debt hole. I’d like to imagine Gordon Brown and Alistair Darling have had a similar conversation this weekend:

Lisa: If I’m going to bail the country out, I’ll have to raise taxes, but in my speech I’d like to avoid calling it a, “painful emergency tax.”
Milhouse: What about, “colossal salary grab.”
Lisa: See, that has the same problem.  We need to soften the blow.
Milhouse: Well, if you just want to out-and-out lie … [Lisa doesn’t object] Okay, we could call it a, “temporary refund adjustment.”
Lisa: I love it.
Milhouse: Really?  What else do you love, Lisa?
Lisa: Fiscal solvency.
Milhouse: [disappointed] Oh.  Yeah, me too.

So what is going to be our temporary refund adjustment?

How about a 2.5% hike in the interest rate students pay on their loans…. it’s like a tax on graduates, but without having to use the word tax. In goverment speak it’s “a 2.5 per cent real rate of interest on student loans” and the University Minister David Lammy has been giving his backing to the idea this weekend so you have to presume this is being seriously considered.

The beauty of this tax idea is that with Labour’s goal of 50% of school leavers going on to University, and an employment rate of around 70% in the UK it will effectively mean that most people joining the workforce for the first time will be paying this new tax. But it gets better, Labour knows it will be hitting the rich hard in the coming years but this policy wont affect them as they don’t need to take out student loans, and it’s traditional low income supporters wont mind either as there are means tested grants instead of loans.

The Dubai Bubble has burst

Just 2 months ago after visiting Dubai for the first time I wrote about the Dubai Bubble and today it seems that this bubble has burst with one knock on effect being the FTSE 100 index suffering it’s biggest one day fall since March.

Clearly not everything was ok when I visited back in September but the failure of a government owned company, Dubai World, to meet a debt repayment will naturally lead to concerns about whether the remaining $59bn debt will be repaid. To put this in perspective it is the equivalent of the NHS in the UK not meeting a $3.5bn payment.

There is little definitive evidence yet of how much of the outstanding $59bn debt is owed to UK banks, but the big drops in their share prices suggest they are heavily exposed. Now I am not a genius and I am certainly not paid a million pound salary, but I was able to indentify the problems out there in just a few days so the banks really deserve what they have coming to them this time.

Have Labour just won the 2015 General Election?

There is one bill above all the others in today’s Queen’s speech which will be making all the headlines tonight, and that prize goes to:

Fiscal Responsibility Bill

Provides a "firm and binding statutory basis" for the government’s promise to halve its budget deficit within four years. Gives Parliament power to approve medium-term fiscal plans. Promises that businesses and investors will have "certainty" about the government’s fiscal plans.

Firstly apologies to the BBC for lifting this straight from their website but we all have to get our news somewhere!

Now ignoring the fact that I would have thought the Chancellor and Prime Minister (who just happened to be the Chancellor for the previous 10 years) should have been doing everything they can to reduce the deficit anyway, or arguably have avoided it in the first place this might just be Labour’s ticket back to power in 4-5 years time.

Regardless of whether this has bill gets passed into law Brown has set his stall out for the next general election, which even he must know he is going to lose. So after they have packed their bags to return to those luxury second homes we have all paid for and David Cameron is in power, his first term will effectively be measured against this impossible goal (maybe it is possible, but we’d all be living off bread and water for that to happen).

So come the 2015 general election whoever is leading the Labour party (probably David Milliband) can attack the Conservatives for failing to halve the budget deficit and if the public buy this argument they’ll win the 2015 election by a landslide. 

Of course if the Conservatives win next year you can never write off them simply imploding in a series of internal battles over Europe. So maybe it is time we gave the Monster Raving Loony Party a try, at least their manifesto promise to withdraw MPs’ £118,000 expenses allowance, and for the money "in future be distributed to the poor and needy so that they can waste it instead" makes more sense than some of the nonsense the major parties are suggesting. And I am a big supporter of their idea to introduce a 99p coin to “save on change”

Remember, remember the Fifth of November

…. The Gunpowder Treason and Plot, I know of no reason, Why the Gunpowder Treason, Should ever be forgot.

Now I wasn’t around back in 1605 when Guy Fawkes attempted to destroy the Houses of Parliament so I can’t comment on what happened that evening. But ever since that evening festivities have centred on the use of fireworks as we celebrate the downfall of the Gunpowder Plot.

I happen to live in a 7th floor flat so normally I have great views of the almost constant fireworks in the week leading up to and after the 5th November. But this year there were very few fireworks, clearly a sign of the harder times.

So maybe it’s time we forgot all the current economic measures such as inflation, unemployment, GDP, balance of payments etc and used the number of fireworks launched on the 5th November as a true measure of the state of the economy. After all, what better measure than the amount of money people are willing to set fire to!