UK national debt forecasted to hit 75% of GDP by 2013

- Dr. Stephen Murgatroyd, Columnist, Troy Media Corporation LONDON – The British government budget is evidence that Britain is in real financial trouble.

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Presented by Finance Minister Alistair Darling, the budget – with its substantial operating deficits, mounting national debts and the obvious reluctance of markets to buy Government bonds – will define the fate of the Labour Party going into an election, which has to be held before the end of June, 2010. It may also be a template for many other nations in terms of showing them how to position “the green stimulus” in their attempt to revive their struggling economies. First, the bad news: According to the Darling, the British government budget deficit in 2009/10 will likely be British Pound (BP) 175B (C$314B). This has led him to introduce higher taxes – higher tax rates for “big” earners, ending pension “giveaways” for these same earners, and a reduction in the number and range of allowances. There are the usual increases in sin taxes – tobacco, gasoline and alcohol. He also announced a reduction in government spending: a target of BP15B (C27B)in “efficiencies”, meaning cuts and privatization. This is what happens when, in the name of “stimulus”, the government mortgages its future. By 2013 the UK net national debt will be 75% of GDP – the highest level in the history of Britain. Then there was the other news. The government, which has made significant commitments to environmental stewardship and climate change mitigation, announced in this budget how it plans to green Britain's economy and create green jobs. There are several interesting things to note here. Like Germany, Britain announced financial incentives for trading in an old car and buying a new, lower emissions, vehicle – BP2,000 (C$3,600) per car. The hope that the government would provide BP5,000 (C$9.000) for each person wishing to buy an electric car – there are currently just 180 electric cars on the road in Britain amidst the 2.12 million cars driving those narrow lanes and byways – was dashed by silence. The more significant commitments came in relation to the government's regulation of greenhouse gas emissions and in its support for renewable energy. Britain has committed to 15% of its distributed energy coming from renewable sources by 2020, with a very strong commitment to offshore wind power. This is despite the fact that the wind industry in Britain currently employs just 700 people and that its contribution to energy supplies in Britain during the recent cold periods was less than 1% of distributed energy. It was coal which kept people warm this past winter. To get to 15% by 2020, according to a recent report by the Institute for Public Policy Research (IPPR), the industry will need significant subsidies and incentives. A total of BP650M (C$1.2B) a year for the next ten years is being sought by the wind power industry in the form of financial and tax incentives for constructing offshore wind farms, a guaranteed feed in price for the energy produced and the use of “allowed” protectionist measures to ensure a high degree of local content in the manufacture and construction of these facilities. Under these heavily subsidized conditions, the industry claims, up to 70,000 jobs could be created. One of the examples used to justify this kind of subsidy is Spain. It is claimed that Spain has successfully used wind power to create jobs and reduce CO2 emissions – app. 10% of distributed energy in Spain comes from wind power. While wind power jobs have increased in Spain, it is at a net loss of jobs in the economy, losses directly linked to higher energy prices and the displacement of energy jobs in other sectors. One estimate is that, when subsidies and total economic costs are accounted for, each “green job” has cost Spain some BP570M (C$1B) and led to the loss of 2.2 jobs for every green job created. What is more, green energy has had a major impact on energy prices in Spain – they have increased by 31%, though remain subsidized to protect consumers and slow the growth of energy poverty. Renewable energy accounts for some 5.6% of all corporate taxes collected in Spain. In addition, the government has committed to reducing total greenhouse gas emissions by 34% by 2020 – although that is much less than many have been campaigning for in recent weeks. The government's green agenda also includes building three nuclear and six coal or gas powered stations, each requiring carbon capture and storage. An additional BP525M (C$942M) over two years was allocated in support of wind farms and a further BP1.4B (C$2.5B) for low carbon manufacturing and green initiatives of a different varieties. Britain is also planning to offer subsidies to firms, factories and households wishing to install solar and wind turbines, especially if they wish to sell surplus power to the electricity grid. The allocation for this is a staggering BP435M (C$780M). The total green agenda announced in the budget is around BP2B (C$3.5B). Inevitably, green activists were disappointed: – too little, too late and no imagination. It also displeased fiscal conservatives because, they are saying, it reduces the competitiveness of British industry while increasing the debt. Widely touted as a green budget for green jobs before it was delivered, the overall reaction is that it is hodgepodge budget reflecting a hodgepodge, uncertain and doomed government. Stephen Murgatroyd is a consultant in innovative business and education practices with a PHd in psychology.

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