Tuesday, 17 April 2012

Budget Planning anyone?

As inflation goes up, the Bank of England decided not to push any more quantitative easing into the system. As this happens, further announcements are made regarding new taxes (that are not called taxes) to try and extract new monies from people who are struggling to survive. Food prices and clothing prices seem to be, according to some media, the main reasons why inflation is going up. No mention of fuel prices and other factors that create a vicious cycle of inflation that produces more inflation.

I listen to the political debate and rest assured that my main concern is ‘how can we trust budget predictions?’ This is precisely why I purposefully decided to avoid getting into a muddle of numbers, figures and percentages and when asked about numbers I explicitly said that we can only indicate aspirations and direction of travel.

The Greater London Authority does not exist in some sort of extra-terrestrial environment. Every item on the GLA agenda is very much linked to the national economy.  Some people tend to think that 14 billion Pound is a lot of money but even 14 billion Pound is a relative amount of money when rising inflation is certainly eroding budgets, creating gaps between nominal value and real value.
In 1997, I could do an awful amount of supermarket shopping with just 25 Pound. What kind of supermarket shopping you do today with 25 Pound? For a long time, we had more or less stable prices but now such kind of price stability is no more and it is difficult to predict what would be the real value of 14 billion Pound in three or four-years-time. What is more, even the nominal figures are in doubt due to changes in grants, Council Tax and other sources of revenue. On top of that, costs are naturally rising and suddenly reserves put aside for exceptional circumstances have to be spent to maintain essential services.

During an electoral campaign, it is not uncommon to see political parties putting caution aside to try and widen their electoral appeal.  I, instead, prefer to talk about aspirations, about things what we very much want to implement, but always state the fundamentals, the obstacles, the hurdles we must overcome before we are able to deliver.
When somebody tells me that he or she is going to create 200,000 new jobs or build 50,000 new homes every year, I must admit that in times of scarcity it sounds like a Panacea, like a perfect world. Reality is quite different. I look at the number of those out of work, of those waiting for subsidized accommodation and of those who are desperate to buy their own homes and, suddenly, even if the number of jobs or houses to be built were to become a reality, even the most auspicious announcements are nothing more than a drop in the ocean.

When it comes to budgets, I am pragmatic rather than ideological. One plus one equals two. Pragmatism combined with a sense of social fairness will put you on the right track. Some decisions are financial decisions and other decisions are political decisions. We will take financial decisions but at the same time we will keep our political commitment to deliver as soon as it is physically possible.

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