Friday, January 9, 2009

Britain's stimulus plan examined PT 4--"Improving Public Services"

As promised, I am finishing my four part series on the British proposed stimulus plan, in the last pre-budget in November.

This part focuses on the part dedicated to the public services. The public services, as I mentioned in Part 1, would be critical to salvaging any measure of credibility in the Chancellor's office for fiscal prudence in this trying time.

I said that the public services, would have to be scaled back dramatically in light of all of this. This is unlikely to happen, but it had to be mentioned. The manner of tax credits and increased spending, would, or, rather, "should" have to come at a sacrifice of government direct spending. However, proponents of this higher spending, say that large budget deficits and greater debt, is nothing to be concerned with at this time. Funny they should say that as an issue to be discarded, as they do, in fact, put you in more debt.

More importantly, reforming public services would come as a result of this pre-budget in any event. For one stark example, the new ways and means to putting together a new and improved access to credit and public welfare, will, as a result, mean that some things will change to adapt to the new demands on certain areas.

Will this part of the pre-budget live up to expectations?

Let's see...

Pre-Budget report here...

Chapter here...

At the preface, the chapter said that it would primarily add more capital spending programs. No big dramatic thing to promote as every other government is doing it and has done it, post Keynes, in an attempt to stimulate spending and increase demand. Also, while they have admitted to job cutting to the tune of over 80k between 2004 and 2007, increases spending to job centre plus [their version of a government employment centre] to assist them with getting people back to work in the private sector.

Now is a perfect time for a firing freeze and I commend the Chancellor for this compassionate act as well as increasing employment subsidies, through the back door with job centre plus.

Moving right along however, this chapter does not ask the question of how this stimulus package, VAT cuts and all, will impact the functioning of the civil service? More importantly, what type of streamlined effect will the newer focuses, have on the labour force of the civil service? Will they, perhaps, move a few directors from the Labour Department to fill the void in the new council's set up for monitoring the effectiveness of the plans? Or, will they hire new folks from the private sector, to man government agencies that have in turn, soaked up other civil service employee's to fit the greater urgency and demand in other areas? Not addressed at all are these concerns and it will be a concern for effectiveness, monitoring transparency and at the same time, managing cost effectiveness of the government by having the right personnel, at the right time with the proper vetting, to oversee this very tenuous time.

Capital spending, is too broad and too bland to discuss. It's the same old Keynesianism. Nothing new and nothing to dramatic, as said. Also, budget deficit in all, and, considering that the UK has a better record on government procurement transparency, they will have the agencies in place to monitor pay to play! At least we hope so and for the Labour party's sake, they will not be riddled with scandal and sleaze, as a result of having their hands in the cookie jar, again!

Importantly over all, the Chancellor expects the value of the British pound to increase by 5 billion pounds over the next two years in relation to its spending targets on key areas which will impact government performance. This is their basis for all the the expanded government spending on health care and the synergies with that and education with the government debt. At the end of it all, it will be wort it-- he says.

While there is no connection, other than just the generalization that these two indicators will improve the value of the pound, what has to be considered as well the connection of the pound to what the main drivers are that affects it.

It is a common fact that the city, especially in regards to the financial services and management consultancies, affect the British pound. The city, pays for the top up benefits the folks in Wickam and Durham, enjoy today. A basis for saying the pound will be stronger, in regards to a value based spending program, when the current global economic crisis is hitting financial services world wide and now, hitting the wider economy, needs a little more explaining.

Now, I can see that providing better health care, would keep you with better workers. However, the city slickers, really and truly, don't need 'freer' health care. They, can readily pay for it. And, secondly, health care for new entrants, should not be a top heavy concern as younger people, do not have the chronic diseases that plague their older counterparts. So, health in this regard, is wasteful spending and more top up benefits to the poor class.

Education, is a key concern. And, one would have to see if the spending on education, would be geared towards beefing up the sophistication of the financial services. This is a given. Also, the UK, now with many reports from the leadership in parliament, are looking at strategic outcomes post crisis. One key outlook, is the need to be an exporter again, to gain more value to the pound against other currencies.

It is unlikely for this "new" export based economy, to emerge, let's say, next year when they value is to be realized as the pre-budget lays out. With higher debt and a loss in the financial services, with a weaker pound compared to the Euro, it is unlikely the 5 billion increased savings to balance out the huge spending, based on health care and education, will be reached. A better estimate to hand out, should be be no relative gain over such significant gain. In fact, they left themselves no wiggle room if things do in fact not shape out.

Lastly, I find it disingenuous, for the budget to suggest that it will increase spending and increase the value of the pound by enhancing output and also, put the UK in greater debt with greater spending over all in 2009-2010 all at the same time, giving no identifiable indicators on how to monitor performance as well as doing that in a time where there is no indicator to suggest when this global economic crisis will be over. There is just no connectivity to sure up these concerns, as critical as they are, and that impacting savings and value to the UK economy--even at the larger extent, as over that of the marginal.

I pray for a better solution to Britain. No doubt they will over power the situation, but at a time where emerging markets are increasing in power, the global power base is shifting and Britain, is the first causality due to it's exposure to debt and the old guards' way of doing business as usual.

In conclusion:

In ending this analysis, the pre-budget in Nov 2008 said allot, but went too shallow in delivering anything on how to go about showing us the way forward on a few issues. It is a good plug, with very sexy terms and exciting buzz phrases like "reducing VAT" and "capital spending" and other macro-economic terms. However, nothing much the UK can do to stave off the deficit, which it will be in for at least 3 to 4 years. At best. In fact, this budget, puts UK deeper into the hole.

But, the UK did something. And, did something quickly. Bank's seizing up in a capitalist society, is a no no. They did much better than Germany and the US, both larger economies and have greater economic power, but are heading the a crushing first half of 2009--with Germany, cruising for a crushing recession in 2009 with no recovery, seriously, until 2010.

This ends the pre-budget analysis and I hope all enjoyed.

See first three parts to the series here:
PT 1

PT 2

PT 3
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