George Osborne’s emergency budget tomorrow will coincide with the anniversary of Hitler’s decision to invade Stalin’s Soviet Union in 1941.
Those of us who, on the one hand, grieve “New” Labour’s sovietization of British society and the UK economy, wait with some trepidation on the other for the new Chancellor’s pronouncements.
The coalition government is reportedly keen to raise income allowances but will at the same time penalise any attempt to translate this extra income into investment capital by slashing non-business CGT exemptions and raising CGT rates. Meanwhile, the combined result of reported plans to raise VAT with recent cuts in the number of tax inspectors is a subsidy of the so-called “black” economy. No doubt, this subsidy will be further enhanced by the usual rises in taxes on petrol, diesel, alcohol and tobacco.
When combined with ongoing efforts to artificially depress interest rates, the unmistakable end result will be to encourage people to keep spending as much or more than they earn, but to try to do so “off the books”. And no doubt any future reversal of the proposed war on capital gains will involve encouraging capital formation under the control of large financial institutions. I can think of no outcome more likely to disillusion coalition members and the wider electorate alike in the longer term.
In 1941, some people hoped that Operation Barbarossa could somehow result in both sides losing. Sadly, until control of the money supply (at the very least) is wrested from the political system’s cold dead hand, such a hope will again be too much to ask for.
All in all, it sounds to me like a good time to go long on gold, silver and ferry companies (the booze cruise boost), and short on the FTSE in general and off licence chains in particular.