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The Budget

Oh! Sch...........!

Blimey he’s at it again!

That’s Alistair Darling I’m talking about.

He said yesterday in his speech that the economy would shrink 3.5% this year but somehow bounce back and grow at 1.25% in 2010 and to an astonishing 3.5% in 2011.

How the MP’s on all sides laughed.

Alistair is the very man for your wild predictions you know.

I feel I must reprise my posting of January 5th this year.

Alistair Darling

Doo-Doo the clown

The tax increase for those earning £150,000 or more is akin to taking a key and scraping it along the side of a Rolls Royce. Everyone on modest incomes gets a wee glow for a while but in reality it doesn’t mean much.

This measure will raise about £3 billion pounds for the exchequer but the truth is that over 100 times that is needed over the next three years.

To put that in perspective the £384 billion that the government intends to borrow over the next two years is more than all governments added together have borrowed since the foundation of the Bank of England in 1694.

Darling has repeated his VAT trick of last year too with the car scrappage scheme. Pointless tinkering that will cost the exchequer but will have no lasting benefit to the economy.

It also further guarantees the inevitable.

Future tax rises.

Why should the car industry be a special case? Every business selling goods is finding it tough and all the scrappage scheme will do is divert much of the disposable income that people are prepared to part with into cars at the expense of the wider economy.

I suppose that whatever was announced yesterday would really be tinkering and hoping and so it proved.

Of course the only alternative UK government is Cameron’s Conservatives.

They are now the government elect.

It’s a matter of time.

How will Scotland respond?

Woolies – One Big Domino

I notice from The Times that Peter Mandelson has put pressure on Woolies’ bankers ( a subsiduary of Barclays) to be more patient about the situation. One can see the reasoning here. If Woolworths and its 30,000 jobs falls, then it will set a precedent and the domino effect will be given clearance for hundreds of similar retail basket cases (JJB et al) to fall in the new year.

The bottom line is though that Woolworths at the point its shares were suspended were worth only £18m whilst their debt was £385. The other point to consider is that if the government continue to intervene to help individual businesses it ceases to become a free market. What will the EU say? or is the EU fucked too? or will the EU have to radically revise its thinking on such things over the coming months and years?

Staring Into the Abyss

Consider this. Woolworths made 90% (widely reported figure) of its annual profit over Christmas. Four weeks prior to Christmas a saviour couldn’t be found for the company. Woolies, founded in 1909, had survived the Great Depression, two world wars and several recessions, but even with a price tag of just £1 for its 820 stores, there was no way back from the Crash of 2008.

This I’m afraid is only the beginning. After the (much reduced) Christmas rush, creditors and banks will be hovering over 323 of Britain’s best known retail names. Insolvency experts Begbies Traynor have compiled a list which indicates that this number have more than a 70% risk of failing before the end of January.

Of course this is not simply the result of a few months bad sales figures. Nor is it a result of media doom and gloom on the subject. The seeds of this crisis germinated about two years ago. No-one heeded the warning signs.

A 2.5% cut in VAT and tinkering with National Insurance in this situation is the equivalent of buying a new suit for a critically ill hospital patient or putting lipstick on a corpse.

Woolworths R.I.P?

Woolworths. Those shops often housed in art-deco buildings, a ubiquitous retailer. I have been a customer of Woolworths for nearly half a century. I used to buy fishing stuff from them when I was a wee boy, when the floor was polished wood and the goods were sold from large rectangular counter/gondola displays. Then when I was a bit older it was packs of five cassettes or the latest album or single. Even now hardly a week goes by without my visiting Woolies in Dumbarton or Helensburgh for a light bulb or a CD or a screwdriver or maybe some pic ‘n’ mix. From a local perspective, Woolworths is almost as much a part of Helensburgh and Dumbarton as the Rivers Clyde or Leven. I’m sure this kind of association will be typical from towns accross the UK. They tended to occupy the same site in towns, often refurbishing, rarely expanding or relocating.

And now the following news from the Times:

“Woolworths, the iconic 99-year-old six-penny retail chain, is on the verge of collapsing into corporate bankruptcy despite desperate last-ditch government efforts to save it.

The board of Woolworths plc, believing it had exhausted all its other options, met at 6pm at the retailer’s central London headquarters to vote on a move that threatens thousands of British jobs.

Here they will agree to put two of Wooworths’ subsidiaries – its 815 store high street arm and its DVD distribution business EUK, which between them employ nearly 30,000 people – into corporate bankruptcy or administration.”

Not Much

To say today except that the VAT reduction prediction turned out to be true. When major retailers are holding pre Christmas sales with reductions of 25% and more, just what will be stimulated at 19p being taken off the price of a CD?

Do you really think it will go down from £8.99 to £8.80?

Do you think holiday companies who have already taken deposits and have glossy catalogues will reduce bills by 2.1% on their gross price from Monday?

Do you think that shops will be feverishly paying overtime to staff to reconfigure their EPOS systems and have them going around with ticketing machines reducing prices?

YOU DO?

You’re Alistair Darling aren’t you?

VAT the Hell?

I featured the possible reduction in VAT a couple of weeks ago here and made the following comment;

bigrab, on November 11th, 2008 at 5:40 pm Said:

It could be reduced by 2.5% but we’ll see what the government propose.

This could have been quite prophetic as if I’m reading the signs correctly Mr Darling is ready to drop the rate of VAT by that very amount. In the world of economists, chancellors and commentators a headline reduction in VAT will stimulate the economy.

How can they get this so wrong?

Earlier in the year when I predicted the recession (when I may say Darling et al were rubbishing such claims) I also said inflation was set to rocket. I have been correct up to now on that but as companies now vie with each other to retain market share, some prices are already falling.  Have you looked at a garage forecourt recently for example?

The revenue the government receive from VAT is already falling.

This measure will make it fall further, by billions.

This means that at some future stage taxation will have to increase dramatically to pay for this futile measure which will not help the economy one iota.

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Although most companies will not (directly) pass on the 2.12% reduction in gross prices that the VAT reduction will bring, some will. This will force others to reduce prices leading to a further downward price-wage spiral.

Falling prices are the last thing an economy needs in a recession.

It results in ‘stagflation’

Nobody wins.

Mark my words.