The prospects for the next year look distinctly gloomier than they did before we all set off on our summer holidays. Not even a cracking Olympic Games can do much to lift the pervading doom.
At least Gordon Brown has delivered on his promise to end the cycle of boom and bust: this time there has been no steady slide into recession, just a resounding crash.
It is easy to understand the government’s difficulties. Hanging over this is the prospect of a General Election within the next 20 months. Taxation revenues are going to be well down this year: lower stamp duty because of the housing market, lower VAT receipts as people spend less and lower corporation tax as company profits fall. Income tax might also drop as unemployment increases. Offsetting this will be higher revenues from fuel taxes and the ratcheting up of real tax rates through the practice of not increasing allowances with inflation.
What is the government to do? It has a massive capital investment programme to fund, but also a public sector workforce that will bring misery to millions of people if they feel that the government is not being fair on wages, as they, like the rest of us, are trying to cope with a rate of inflation that is in reality well above any government figures.
I suspect there have been few on holiday at the Treasury this summer as they busily prepare the stealth taxes for the Chancellor’s autumn statement.
Public finances will have been wrecked by the time of the election.
Post election there will be a few difficult decisions to take and one might be what to do with the Bank of England. Like the government, it has managed to get by for most of the past 10 years on benign global conditions where it had to do nothing to look good. But those benign conditions were just a front for a staggering level of complacency that allowed an explosion of debt.
As the sub-prime mortgage crisis, Northern Rock and its overall supervision of the financial markets have shown, the Bank of England is as effective as a chocolate teapot. All the focus seems to have been on interest rates and the monetary policy committee and not enough on basic supervision and regulation.
A one-dimensional economic policy of controlling inflation through interest rates has failed, especially as the main contributors to inflation, energy and utility costs are, like death and taxes, unavoidable. The BoE and government will no doubt puff up their inflation-busting achievements next year when the headline rate falls. That’s great for the politicians, but the rest of us will still be paying the higher prices.
Chris Blythe is chief executive of the CIOB