Economic prospect worsens

The news gets stranger. The UK pound continues to drop, now on the news that the government will breach its self-imposed borrowing limits, which have proved to be worthless when they might have been most needed. Clearly, Gordon Brown’s economic policies were not designed to withstand stormy conditions. An expected shortage of tax revenues, combined with a growing bill for unemployment benefit, to say nothing of the money thrown at the banking bail-out, has left the British government short of cash.

Income from Stamp Duty Land Tax has almost collapsed; the Campaign argued strongly against continuing with Stamp Duty when reform of the tax was the subject of consultation a few years ago, so we have been proved right on that score. The falling £ will add to the inflation figures and that will push up the government’s bill for welfare-related benefits. This is a classic vicious cycle at work.

The government claims that increased borrowing is needed to stimulate the economy and minimise the impact of recession. There might be a case for that if the borrrowed money was spend on improving and renewing Britain’s creaking infrastructure, but it is far from clear that this is what will happen. It seems more likely that it will go in for make-work schemes which will add little or nothing to the country’s physical wealth.

The British Property Federation wants the government to make matters worse by abolishing the Business Rates charge on vacant commercial property, a change that came into force in April 2008. Liz Peace, speaking for the Federation, has pointed out that owners are demolishing perfectly good buildings to avoid the tax. Why the tax authorities allow owners to get away with this is a mystery, as it ought to fall within the catch-all tax avoidance legislation. Of course if the Business Rate had been replaced by the tax proposed by the Campaign, it would not be possible to avoid it be demolition, since the tax would still have to be paid on the site whether it was vacant or occupied. The owners would be obliged to cut the rent to find a purchaser, and there would only be relief if the actual market value had fallen, which would show up when the valuations were revised – this is one of the reasons why the Campaign also calls for annual revaluations.

In the meantime, new rules for sick and disabled people claiming Incapacity benefit come into force. New claimants, and eventually all 2.6 million already on benefit,  will now have to attend a so-called “work interview” so they they can try to get themselves back to work. How is that supposed to happen with unemployment heading towards 2 million and likely to peak at 3 million before the recession is over?