The Government has no money

A remarkable fact that many people forget to think much about is that the Government has no money. In order to ‘spend’ money, it must raise money from the public via taxes. Indeed, Liam Byrne, outgoing Chief Secretary to the Treasury of the previous Government, left a note to his successor reading: “Dear Chief Secretary, I’m afraid there is no money. Kind regards – and good luck! Liam.”

Although meant flippantly, and as a joke, the actual position is exactly as he stated. Further to the premise that the Government has no money, it actually spends more than it brings in as revenue. This overspend, known as the deficit, is covered by the Government borrowing from the financial markets.

As long as the markets have confidence that their money lent to the Government will be paid back with interest, there is not too much of a problem. There is a problem though when the level of borrowing grows to an extent that the cost of servicing the debt starts to eat into a significant part of the tax revenue brought in; raising taxes just to finance borrowing.

At the start of February, in this column, I pointed out that the US spends over $265bn per annum, and rising, merely paying the interest on its debts. Thankfully for the US interest rates are at record lows.

Looking at the UK figures, for where major Government ‘income’ is raised according to the OBR forecasts: 27.2% is raised from income tax, 18.6% in National Insurance, 17.9% in VAT, 7.9% in Corporation tax, 5.1% from fuel tax and duties, 1.7% in stamp duty and 3.6% in alcohol & tobacco duties.

Looking at the UK figures, for where non-departmental Government expenditure is targeted according to the OBR forecasts: £182bn or 54.0% is allocated for social security benefits, and a not insignificant £45bn or 13.3% on central Government gross debt interest.

Mr Osborne stands up in the House of Commons at 12.30pm, after what I am sure will be another feisty Prime Minister’s Questions earlier at 12pm.

Many of the changes affecting anybody in April were mostly set out in the Chancellor’s autumn statement which was ironically delivered in December, in winter. Maybe the seasons have been pushed back as we have been experiencing winter in spring this year.

There was a time when Budget Reports were market sensitive and would only start once the stock market had finished for the day. As mentioned, there are unlikely to be many significant changes to the autumn statement, hence the Budget taking place during market trading hours.

It is a sad indictment of Budget speeches in the recent past that the nitty-gritty is rarely mentioned in the speech, and we usually have to wait until the next day to find out what changes if any have been made.

The spin doctors get to work in the evening, trying to emphasise headline grabbing initiatives. As always, though, the devil is in the detail in the written Budget report.

Meantime, I expect the stock market to be largely uninfluenced by the Budget as global matters such as the economy of China and US are just as important as the state of the UK economy.

Anthony Platts is a Chartered Fellow of the Chartered Institute for Securities & Investment and a Divisional Director in the Teesside office of Brewin Dolphin, and can be contacted on 01642 608855.

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