Much-abused middle classes are being soaked for Labour's spending plans: John Woods
There is only one thing worse than having to pay too much to borrow money and that is not being able to borrow money at all – as Fred Goodwin of Royal Bank of Scotland learnt on October 7, 2008.
We may be horrified that money markets have been demanding over five per cent on 10-year gilts. But at least they are still lending to us.
We are in a very delicate position. The markets have real doubts about the UK economy but would like to continue to lend to us as we are offering better rates than our main competitors.
It is, of course, the job of money brokers to get the best rate for their customers but there is a limit. So it is important the Government reassure them that they are doing all they can to manage the situation responsibly. No more Liz Truss!
But unless those in Government who make the decisions are very careful, the markets can decide one day that they are safer putting their clients’ money with one of the other major borrowers even though their rates may not be quite as good.
Remember we’ve only got away with it up until now because we are still regarded as one of the major world trading economies – US, Europe, China, Japan and us – and that still gives us credibility.
This has allowed us to continue not only to borrow way beyond our ability to repay but also to do so at not bad rates.
What the money brokers want to see is we are taking things seriously. No more welfare payments that hardly any other country can even dream of. No more going on about ‘high’ interest rates.
In our present circumstances, five per cent is reasonable by any standards and we owe the markets some respect for that.
Although in the immediate term the bond markets’ support is vital, they are not the only ones who the Government needs more than they need the Government – that is the taxpayer (or middle classes as we could call them now).
They are becoming the most neglected, abused and unappreciated section of the country.
The answer for a Labour Government, if strapped for cash, is always to look to the middle classes for more taxes. The middle classes have a ‘moral duty’ to contribute to the Government’s welfare and social policies via higher rates, income tax, National Insurance, wealth tax, stamp duty and the plundering of private – but not public sector – pensions.
We are about to find ourselves in a rough world where unpleasant decisions have to be made and could find that, one way or the other, the long-suffering taxpayers are not willing to pay any more.
On a separate point, if you look at recent public sector wage settlements, they reflect the additional tax the staff in question will be paying. In other words, if you put up taxes public sector employees will put up their pay claim to cover it. This is Government-created inflation.
It is ironic the current Government who has to sort this out is Labour. It is concerning that so many people seem to want to take over the leadership of the Labour party, and as a result the Government.
It suggests it still hasn’t dawned on them how bad things are. That must worry the markets.
John Woods is founder and executive chairman of Moneyfacts. This article originally appeared in INTEREST from Moneyfacts magazine.