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Today a not very bright chap wrote into a very angry Telegraph comments board saying that the emergency budget was wonderful and if we all went out and spent our money all would be well in the UK economy.

Fortunately this particular person is obviously as thick as two short planks because he did pick up a lot of flack from other people. Of course and in basic principle, he is correct but in the same sense that if people holding stocks and shares in a particular company refuse to panic sell, the share price will not crash but, that is not the way human beings tend to react.

Buy Something…

When Eisenhower was the President and the economy hit a downturn he was asked by a journalist; “What should we do Mr President ?”

His reply was to go out and buy something. “What ?” His reply; “Anything”.

Whilst you may correctly argue that the UK economy needs to be rebalanced to ‘genuine’ wealth creation, that will take a long time to do, we need action now. The economy is shaped as it is but people spending in the shops and even if they are imported goods, will keep UK citizens in jobs. Further than that, we do still manufacture stuff for export in the UK and whether goods or services, we need our trading partners to be buoyant too in order to do that which means that we must continue to buy from them too.

Reality Is Reality

Well that is the theory but the reality is different. The only group of people with disposable income that can spend in the shops will be 50+, kids off hands, mortgage paid but, they will already have most of the major “things” that they need – replacement only will be their buying pattern. Additionally, they will now be worried about their retirement prospects because of ‘falling’ property prices, yields & returns on annuities. The younger people with growing families will be too strapped and worrying about job security to spend, paying off the mortgage and getting their children through Higher Education will be their priority.

Finally as Mervyn King pointed out, the 2.5% 13 month reduction in VAT, won’t even start to kick in before late Spring next year. In fact, what idiot came up with the VAT reduction idea as a “stimulus” to the economy during a period of falling prices ?

Yes it will cost the Government £12 billion in lost revenue but it won’t stimulate the economy one iota. I am already getting +20% discounts on most “optional purchases” I make. They should have kept it simple – raise all the tax thresholds and reduce NIC at the lower end. You can understand just why this country is in a mess and just how incompetent Gordon Brown always has been, reducing VAT by 2.5% is surely Labour’s “Let them eat cake” moment.

I wonder why we bother paying our MPs anything in the way of salary, they just haven’t a clue.