UK: Brown's Budget's bust; Britain, Britons borrow

Gordon Brown always knew his April Budget could not be met. His Labour government promises everything to everyone who makes sufficient noise and gives away money to crazy causes; it uses national lottery money for public projects that turn into what used to be called "white elephants" but are now called "Labour's Millennium Projects" - most of which were for the greater glory of the New Labour Government but have turned to metaphorical dust.
The balancing act was never going to work: UK government spending has been smoke and mirrors for the past five years. There is a SADIM complex: exactly the opposite to Midas: he took sand and turned it to gold; Brown has taken gold and turned it to sand: and it, and he, are shifting as he tries to continue to conceal the true state of the UK economy.

By all accounts, the economy is debt ridden. Personal and corporate insolvencies are rising, unemployment in the all important service sector, upon which the UK under current and former governments has pinned its hopes of salvation, is rising. House prices are astronomical yet salaries and bonuses in the sector that supports them are falling. Compliance jobs are being offered at appallingly low salaries - many under GBP35,000 are advertised. There are predictions that up to GBP20 milliard will be spent using credit cards over the Christmas period. This means that the money has to be repaid next year, so reducing money available for spending on other things. So tax revenues can be expected to spike from consumer spending and then fall back sharply.

The national budget, only six months old, is a shambles. Brown has admitted he is going to have to make heavy borrowing to try to bring it back.

If the UK were a corporation, its shares would be in freefall today, after Brown announced, within the past few hours, a near-doubling of government borrowing, claiming it is needed to avoid further tax rises or cuts in public services during the global economic slowdown. And there would be serious questions over how its financial management team could overstate its anticipated revenue income by such a fantastic amount. Its auditors would be investigated; its directors would be investigated; its corporate governance policies would be called into question, if it had any. Heads would roll.

Brown's budget speech 2002 was a masterful expression of denial that the global economic shambles would have a big impact on the UK's domestic budget, even though an O Level economics student could tell that the UK's dependence on "invisibles" meant that the economy would not survive a global slowdown.

Brown holds a senior position at the IMF which gives the UK economy a positive report. Are there Chinese walls there, or is it only in investment banks that officers and analysts are criticised for influence?

The problems reinforce the reason that Brown has been so pumped up about offshore investments and pushing for current year taxation of global income for UK residents: he needs to take from those who are investing for their retirements to pay for his shortfalls now. And the idea that he will not increase taxes is fiction: over 300 tax rises have been identified by his political opponents since he came to his position.

All the signs point to increases in taxation. And soon. The most likely way of doing this is by an interim budget (which will be called something different) with increases in duty on some products. A rise in the basic rate of VAT from 17.5% to even 18% would raise a very significant sum of money yet cost no additional collection charges. All of these will increase tax evasion.

Political and financial instability increases money flows. And money flows shield dirty money movements. The UK is poised to become a risk area as more people seek to protect income and assets from an increasingly uncertain future, and a predatory Exchequer.

Therefore financial services businesses should expect to see an increase in investment from the UK. The problem is to identify which is money properly invested.