Belt-Tightening Brown Threatens Cutbacks

    GORDON BROWN has warned his fellow ministers to abandon any hopes of big rises in next year’s public spending round. Latest figures say that the government is in the red by almost £14 billion in the first three months of the financial year.

    That compares to £10 billion in the same period of 2002.

    Capitalist commentators say that Brown’s forecasts of a £27 billion deficit for the year were wildly optimistic. They think weaker economic growth will reduce tax receipts and push the deficit over £30 billion – £20 billion more than Brown predicted a year back.

    Mervyn King, the new governor of the Bank of England, says the economy is in for a bumpy ride as the consumer boom winds down. That boom has been fuelled by debt.

    Household spending has risen faster than output for the first time in history. The Bank of England encouraged this – it brought growth of sorts.

    But now household debts, after their most rapid growth since 1990, have hit an all-time high of just under 120%.

    People are now tightening their belts noticeably – if banks, credit cards etc. stop lending so much money to consumers like us, some economists fear a new recession.

    Whether that happens or not, the government will definitely need to borrow more. Brown hints that health and education spending would be unaffected but economists calculate that every percentage point reduction in economic growth below the government’s over-optimistic target would add £6 billion to £8 billion to the ‘hole’ in the budget forecasts.

    To fill this hole Brown is likely to cut public-sector spending and increase job loses as well as increasing borrowing and raising taxes. The crisis in the capitalist system is preparing a big shock for its most trusting defenders – New Labour.