Der Spiegel: The UK "A Prayer from the Death Bed"

Kohoutek

If you subscribe to the view that it's easier for an outsider to make an objective view of a problem than an insider, this article by the German newspaper Der Spiegel might make sobering reading. It was written for a German audience, not a British one (so no optimistic bias), it has been translated into English for the Der Spiegel website.

http://www.spiegel.de/international/europe/0,1518,683832,00.html

The country that was once referred to as "Cool Britannia" is in a serious crisis, with a hole in its budget even bigger than Greece's budget deficit, now at 12.2 percent. And nobody knows how to fix the problem.

To complicate matters, Britons will go to the polls in a few weeks, probably on May 6. The next prime minister will have his work cut out for him: reducing the massive budget deficit, restructuring the banking industry and successfully reorienting the economy. And he'll have to do it all on a shoestring budget.

Tough times are ahead for the United Kingdom, so tough, in fact, that none of the parties has dared to say out loud what many in their ranks already know. At a minimum, Britons can look forward to higher taxes and fees. "We will have to make a lot of sacrifices," says economist Carl Emmerson of the independent Institute for Fiscal Studies in London. "The cuts," he says, "will be more drastic than those under (former Prime Minister) Margaret Thatcher."

Tougher than Thatcher. Such words still trigger a flight instinct today -- away from the Conservatives. In the 1980s, barricades were set on fire and police clashed with protestors in the streets. It was a time many Britons haven't forgotten.

The Iron Lady may have advocated austerity measures, but real government expenditures continued to grow from year to year under her aegis, with only one exception: 1988. Because of the budget deficit the next government, no matter who leads it, will have no choice but to sharply cut government spending.

The accountants at PricewaterhouseCoopers have calculated that starting next year, Britain would have to make across-the-board budget cuts of 5 percent a year to come close to cutting the deficit in half by 2014. But because the Brown government has already declared the budgets for health, law enforcement and schools to be off-limits, cuts of up to 10 percent -- per year -- are to be expected in most areas, according to PricewaterhouseCoopers. And things could even turn out to be much worse if there is no strong economic upturn during this period.

No matter when this era of cutbacks begins, it will be brutal. More than 100,000 jobs in local governments are at acute risk, says Tony Travers of the London School of Economics. Some communities are already reducing personnel, and playing fields, libraries and social workers are threatened.

There will also be massive cuts in low-income housing construction and transportation, translating into even more dilapidated housing, more potholes on Britain's already miserable roads, and new cutbacks in high-speed train service. Universities have already lost close to £1 billion in funding, and various think thanks predict that the defense budget could shrink by about 15 percent between now and 2015.

"The British will spend the rest of their lives paying for the debts that the banks and this government have brought upon us," says Mike Whitby, the Tory mayor of Birmingham, who has just laid off 103 people, to be followed by as many as 2,000 more city employees this year.

The city, which is now heavily in debt, invested in shopping centers, new buildings in its downtown area and the country's most spectacular library, a £190 million project. Birmingham decided to shift the focus of its economy to conventions and tourism, as well as to expand the service sector.

But even when the investments failed to produce new jobs, the city continued to pump money into its ambitious projects. There were piano teachers, diet assistants, debt counselors and park security guards on the city payroll. Birmingham was pursuing the same kind of public utility model that had developed throughout the country in the Labour years, a model that held up until the crisis began.

Birmingham is a typical example of the British crisis. In large parts of the country, outside London, in places where the world's factory chimneys once belched smoke, the government has already become the biggest employer. The cradle of industrialization has become largely de-industrialized, refocusing its economy on banking and services. Manufacturing's share of GDP was already in decline under Thatcher, but it shrank even more quickly under Blair and Brown.

Brown intends to correct these mistakes after the election. He conjures up a new form of industrialization, saying that up to 1.5 million highly qualified jobs could be created in the next five years in key, future-oriented industries, like biotech, renewable energy, software and the Internet. The country needs engineers, not financial jugglers, says Brown. But the way Brown puts it, it sounds like a deathbed prayer.

Talented Oxford and Cambridge graduates will be working for these companies in the future and not, as in the past, for London investment banks. But while these business will undoubtedly employ larger numbers of young people, will it be 1.5 million, as Brown predicts?

phil_b_2

Kohoutek wrote: »

It was written for a German audience, not a British one (so no optimistic bias)

'British' and 'optimistic' should never be used in the same sentence. We are our own worst enemy.

Kohoutek

Yeah, but I don't think that applies to matters as big as the future of the British economy. Most British newspapers are keen to pour scorn on the Eurozone's woes, ignoring the problems at home. Lack of self belief or overly negative sentiment is not the reason why the British economy is in the way it is.

I think Der Spiegel has it spot on. Today's Britain is the product of decades of mal-investment, especially Labour's expansion of the public sector - the example of Birmingham is used well in the article, albeit depressingly.

The fact that real government spending increased under Thatcher every year but one is a pretty frightening thought, despite the social turmoil of the time, considering that in the next ten years, real government spending has to fall substantially and the economy, particularly the manufacturing base is much weaker than in the 1980s.

I recommend the rest of the article, e.g. the analysis of the two electoral contenders:

Both candidates provide voters with reason to question their qualifications for the tasks at hand. Incumbent Gordon Brown, 59, in his former position as Chancellor of the Exchequer in the government of his predecessor, Tony Blair, boasted of having put an end to the ups and downs of the economy once and for all. But he had hardly taken the reins from Blair before the economy plunged into the cellar.

Brown's strong showing is primarily attributable to his Conservative challenger David Cameron, 43, part of the arrogant upper class whose stint as a special advisor to the chancellor of the exchequer, during the 1992 crash of the British pound, is seen as his only experience in coping with economic difficulties. Furthermore, even his fellow Tories question the qualifications of George Osborne, 38, Cameron's designated chancellor of the exchequer.

markharding557

The brutal truth spelled out of the true state of the country

worldtraveller

Wake up & smell the coffee people!

kabayiri

It's all a bit depressing.

We have the means to drive down costs in practically every area of public expenditure; outside of jobs cuts.

We just don't have the collective will to do so. Every faction, every individual, will be fighting tooth and nail for their own stake in a diminishing pie.

amcluesent

Plus the Islamist fifth-column, police out-of-control, inflation let back in, lights going out in 2015 after failures in energy security, aging boomers on the NHS, ...

Cleaver

amcluesent wrote: »

Plus the Islamist fifth-column, police out-of-control, inflation let back in, lights going out in 2015 after failures in energy security, aging boomers on the NHS, ...

At least if 'the lights go out in 2015' you can cease your absurb worries of Muslims taking over the world. They won't want to set up a fifth, sixth or seventh column in the dark. Problem solved.

What is an Islamist fifth-column anyway? I'm off to have a Google, but I'm having a guess that it's lots of people on the internet all saying that Muslims are taking over the country and that it just isn't on. Am I in the right ballpark?

amcluesent

ITV's new chairman: UK faces 'national crisis'

Archie Norman, the chairman of ITV, has said that the UK is facing an economic "national crisis" worse than that faced by Margaret Thatcher at the end of the 1970s.

"I think that this country is facing - in terms of the economy - a national crisis," Mr Norman, who was formerly a Conservative MP and shadow minister, said.

"The level of public debt, the public sector borrowing requirement, the slow rate of growth, adds up to a challenge that is greater than the challenge in sheer numbers that Margaret Thatcher faced in 1979.

"If we don't face up to it early, we will be confronting years of slower growth, lower employment."

StevieJ

You forgot this bit from the same article

Brown's challenger, Conservative Party leader David Cameron, is not seen by the British public to possess the necessary economic know-how to lead the country back to economic health.

Kohoutek

I couldn't include everything, I didn't quote the stuff about political parties because I wasn't trying to make a Tories v Labour point...neither is the article

If you read the article, it doesn't put Labour in a good light either.