by Alex Porter, Economy Editor
The UK’s trade deficit, which stood at £8.5bn in November 2010, rose to £9.2bn in December according to the Office for National Statistics (ONS).
In light of the latest figures all talk of an “export-led recovery” in the UK economy will now be viewed with extreme scepticism. The latest monthly deficit in goods compares to a surplus in services which includes the ‘resurgent’ banking sector and which stood at £4.4bn to the good.
The banking surplus is not surprising given how much free money the Bank of England is injecting into the private banks. This almost free cash is used by the banks to buy and sell financial products from and to each other and each transaction is then calculated as earnings which then triggers banker bonus payments.
The policy of the former Labour government and the current ConDems of transferring taxpayers money to support the banking sector is having a deleterious effect on the UK economy. When the trade deficit is subtracted from the balance of payments surplus there is an overall deficit of £4.8bn for the single month of December 2010. This is the worst monthly deficit in the last 5 years.
Compared to key trading partners the UK has a relatively small manufacting and exporting sector. The Bank of England’s policy of printing new money and giving it to the banks (quantative easing) decreases the value of the pound. This does help make exports more competitive but as the UK is an importing economy importers must pay more for the goods which come into Britain, and so the trade deficit escalates. On top of that the increased costs incurred by UK importers are then passed on to the UK consumer resulting in increased prices on main street, othweise known as inflation.
Increasing trade losses means there is less and less tax take for the UK treasury which consequently has to borrow money to balance its budgets. Given that the UK government is undergoing a crisis in its public finances this kind of news is very unwelcome. In November government borrowing reached a record £23.3bn and today’s trade figures means that even that staggering figure will likely be surpassed.
With the UK economy falling off a cliff, Scotland is being told to cut its cloth. This is despite the fact that Scotland is running a surplus in its national accounts. That surplus goes to help plug the hole in the UK’s finances whilst a further £1.3bn is being shaved from the Scottish budget to fill the same hole.
As has been evident in the last week these cuts are beginning to bite. North Ayrshire council have proposed a plan to implement a four-day school week for primary and secondary schools and Glasgow University could be insolvent by next year according to its Principle Anton Muscatelli. These are the first signs of just how deep Westminster’s austerity cuts are going to be.
With the Holyrood elections looming Scots will want to know how their jobs and family budgets can be protected from the consequences of the UK’s economic crises.
Full Fiscal Autonomy would mean Scotland’s surplus would stay in Scotland and if there’s a deficit south of the border then it’s not for Scots to be held to account for the debts of others. This is the policy of the SNP, however as long as Westminster controls the powers the Scottish parliament has over taxation it is for Scots voters to pressurise the Unionist parties into withdrawing their support for the Scotland Bill. This ill-conceived Bill leaves Scots exposed to the worst effects of the crisis in the UK’s public finances. The Unionist parties must give backing to fiscal autonomy, which is supported by a majority of the Scottish electorate along with eminent economists and business leaders.
Two forces of the economic weather system are about to collide. The high pressure of the UK austerity programme is about to meet the low pressure of the Holyrood election campaign. Voters are in an extreme state of anxiety over jobs and services and the party which does not convince the Scottish electorate of its economic competence will find itself tossed out of the consequent tornado on May 5.