.gif)
The end is nigh! Or is it?
There's a good chance that next month the UK economy could be declared out of the recession, to the collective relief of all in UK plc. Even so, with a debt mountain growing daily, there may be further painful days ahead. Green shoots may not mean we are out of the woods just yet.
Economists and strategists throughout UK plc, not to mention the Government, will be waiting nervously for the figures out next month that will show whether Britain's worst recession since the 30s is finally over. We won't know until the third quarter figures are in but it looks as though the economy will have returned to positive growth, albeit slightly.
For certain it will be close; either a slight contraction, which will mean we we're still in recession, or slight growth, which will mean its over - at least for now. Whichever way it goes, it will not actually be that significant in terms of how well or badly the economy is performing, since, firstly, it's already happened, and secondly, it will not be a very large change. However, there is real significance to what the figures do for business and consumer confidence. If the recession is over then there will be a highly audible sigh of relief in finance departments across the land. If it isn't then the depressed look in finance directors' faces will remain until at least next year.
It would be fairly safe to assume at this point that if the recession isn't over this quarter it will be over by the next one. This does not mean however, that the pain is over. Far from it in fact.
During this recession the Government has run up debts on a scale not seen since the second world war, and the problem with this debt is it has to be paid back. Who is going to pay it back? For those of you with children, you can safely say that they will be saddled with repaying this debt as it is going to last for at least another generation. In the meantime though, urgent action is going to have to happen to try and restore the country's finances and it's going to hurt.
There is about to be a huge divide in our nation and we should not rule out the possibility of social unrest. Most certainly there will be industrial unrest with demonstrations on a scale we have not seen since the 80s. The divide will not be between North and South, or between black and white, or even between rich and poor. The divide will be between the public and private sectors.
During the last 12 years the public sector has been growing relentlessly. Much of this, particularly in the NHS was desirable and necessary. After all, that's what we voted for in 1997 when we ended 17 years of Tory rule. Waste has always been a problem in the public sector and the spending bonanza that it has enjoyed since 1999 has inevitably boosted this.
More worrying though is the fact that public sector pay is now significantly higher than the private sector. Many public sector workers retire at 60 and have generous final salary scheme pensions. It used to be the case that in the public sector, you were perceived as being safer, with better working conditions and benefits, but lower salaries. People joined the public sector out of vocation rather than to make money. Not any more.
So what is going to happen? For sure taxes will go up. Some increases have already been announced but these increases will barely scratch the surface. I think you can very safely assume that VAT will be at 20% by the end of 2010. Your income tax will go up, with employers' NI bound to be milked as the perception is that it's not paid by the workers themselves. Personal allowances (the bit of your salary that doesn't get taxed) will be frozen. However none of these measures, painful though they will be, are likely to even dent the huge debt problem. What's worse is that, whichever government we have after next year's general election, the cost of that debt will rise astronomically as interest rates rise. Therefore any government will have to put the squeeze on the public sector and there will be no sacred cows.
If you were to look at a chart of government spending you will see that there are only two huge numbers that would really make a difference. These are health and social care. No meaningful improvement in the public finances can occur without these two gigantic bills being reduced. The Tories are already talking about pushing all the not very disabled people claiming disability benefit, back onto job seekers allowance (which is lower). This will make the unemployment figures look awful but at last we will see the real number. A noble act in my view but let's not forget who it was in the early nineties that took them all off the job seeker's allowance in the first place (the Tories). An attack on the benefits culture is long overdue and this should be politically acceptable because these are not the people likely to vote Conservative anyway. The other big number is the NHS and there will be howls of betrayal with either party who wins, because the NHS budget will not be growing as much as we would all like.
Public sector pay generally will have to be kept down and you can expect tube train driver strikes through to hospital porters, council workers and teachers. We can only hope that the cuts come through salary rise control rather than too much of a reduction in numbers. But I would not bet on that. Not filling vacancies will cause less industrial strife than holding back pay. You can certainly expect a fight between central Government and local councils. Councils will try and plug gaps in their finances caused by lower government grants by raising council tax. We could see the return of rate (council tax) capping to keep this under control.
Whatever happens and whoever wins next year, you may expect the changes to happen swiftly. If it's the Tories they will want act fast so they can make sure they can blame the last government for the mess in the public sector. But if Labour win they will still want to get the pain and strife out of the way early in the parliament, so that things will look better at the next election. Most serious of all will be a hung parliament. If the election uncertainty is not out of the way, politicians will not grasp the nettle and the crisis will deepen.
Policy makers will have a fine line to tread between taxing us back into recession and getting public finances under control. Higher taxes and poorer public services are on the way. How painful this will all be is dependent on the skill of our rulers. I am worried!
