The 2010 UK budget in brief.

Reading: Hamish McRae in The Independent, Ambrose Evans-Pritchard in The Telegraph and Jill Palmer in Tribune.

Sometimes politicians write perfect political cartoons in the form of soundbites. I think this means communication which zings from one mind to another with the least possible interference. The Lib Dems shadow chancellor Vince Cable delivered one last night at Channel 4’s Ask the Chancellors Debate when he was talking about the behaviour of some investment banks since receiving the UK taxpayer bailout. It reminded me of my drawing about over-powerful institutions facing the end-of-their-road. I’ve edited this piece to take account of Cable’s observation.

The Budget today could politely be described as a ‘holding operation’ until the general election is over. Only then will the consequences of the financial bailout of the insolvent banks and financial institutions start to unwind in the public sphere. Whoever leads the government, it will be messy.

A nod to Chancellor Alastair Darling who is likely to be standing up for the last time, his hair and eyebrows are holding up remarkably well bearing in mind the events of the past three years.

Red-Handed fat cat political donor UK party political donations © Matt Buck Hack Cartoons

Hack Cartoons archive illustration on what political party fundraising types (of all sorts) tend to do.

Caution: Contextual information down below.

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Politics is about interests of groups and individuals. The expression of disagreement about these interests comes out in political thought and action and in the UK it is channelled through the established political parties, Labour, Conservative and Liberal Democrat.

Clashes of interest are usually over distribution of resources and this tends to occur between working people, who generally provide work or labour in return for wages, and owners, who possess assets which may include the offer of a job. It is this basic relationship which provided the platform for the eventual establishment of the three major political parties in the UK.

If you add time and money and mix, you produce entertaining and informative results. These often include enlightening observations about human behaviour in pursuit of power and a free lunch.

This may help explain some of the recent news obsession with Lord Michael Ashcroft and the Unite union because both of them are the major paymasters for the Conservative and Labour parties.

Reading: BBC Q&A on party political funding

Reading: Wikipedia on party political funding

Reading: Sir Hayden Phillips Review of UK party political funding

Measurements of recession change depending on the political and economic beliefs of the times. In the recent past in the UK, recessions have been measured by perceptions of ‘growth’ in national economic activity, so the second definition at the last link is the relevant one.

Of course, the government is very pleased to see today’s news that the UK is now growing again (0.1% in the last quarter – BBC report.) However, every set of statistical information has something called a margin for error which gives some allowance for inaccurate information and this puts this growth into perspective.

Even if we are growing again, the contraction in economic activity that has taken place over the past two years means we are growing again from a very much lower base than previously. You can blame that on the recession (rather perhaps than individual banks, central bankers or politicians) but, if you do, don’t forget to ask yourself what caused it.

So, the 2010 election campaign in which no one talks about the issue has started. We know it has because expensive poster sites have been purchased. It’s going to be a tiresome few months while respective campaigners batter glossed messages back and forth and the potential voters look for something more enlightening, or productive to do.

The essential issue, which will be avoided as much as possible, are  how the cuts in wages, public services and the rises in taxation made inevitable by the gift of money to the insolvent financial houses will be managed.

The ‘emergency’ budget following the election will be brutal whoever wins. Social distress (a euphemism for further unemployment and mass protest) may come in the wake of wage cuts and job losses in the public sector later in the year.

On the party political front, Labour are a mess, unable to ditch Gordon Brown, a massively unpopular (and probably unhappy) leader. They seem to need an argument and a leadership election about what they are for. The Tories have a ‘flawless’ front man in David Cameron they appear to neither particularly  want or like, but they will be loyal while he holds the prospect of a general election victory after 12 years in opposition. (The launch of the first Conservative poster may reveal an explicit Cameron not Conservative sale.) After the election and probably in office, the internal party loyalty will be more prone to fracture, perhaps even under pressure from business interests lobbying about the need for entry to the Euro, especially if sterling continues to be devalued to inflate away the enormous national debt.

Nick Clegg, leader of the Lib Dems and the other minority nationalist parties will find themselves courted as potential partners in any possible coalition or minority government should the result be as messy and close as some predict.

More unpredictable general problems are the after effects of printing money to prop up the economy during 2009 (quantitative easing), the collapse in sterling relative to the Euro and the Dollar and the price of interest payable (yields) on UK government debt (gilts). The Chancellor (of the Treasury) and the Governor (of the Bank of England) have to try and sell record volumes of gilts to finance future national spending.

When asked for something optimistic to add to this speculative post, a close collaborator said, we may not need an election for another four years. Some people also hold out hope for Fabio Capello’s England team in the World Cup. (Labour are bound to roll out the old line from Harold Wilson about only winning it under a Labour government…)

Perhaps the weather will also improve. Please add reasons any more reasons to be cheerful in the comments below if any spring to mind. Happy 2010.

News that a government owned property company in the Emirate of Dubai has asked for a moratorium on repaying its debts has spooked more than a few global financial marketplaces.

Wikipedia reveals the emirate’s main revenues are from tourism, real estate and financial services. All of these areas are, or have been, hard hit by the global downturn/recession/revaluation of asset prices*.

Dubai has been a place of conspicuous consumption for the recent past and the sort of place where footballers like to to buy second, or third homes. In that last link, The Times explains how these seemingly unrelated stories connect. The absolutely last paragraph in the story is worth reading.

AIG and Manchester United cartoon © Matt Buck Hack Cartoons

The BBC is reporting the story as a financial crisis in the ’middle east’ and this is true although it is important to remember that the global financial system is interconnected and there is a likelihood that debt default problems in Dubai will have unintended consequences on a much wider scale.

The cartoon is from March of 2009.

* Take your pick.

Later today it is quite possible the Bank of England will choose to invent a lot of money again. This is to help supply ‘liquidity’ or, credit to the UK’s national economy. The process is called Quantitative Easing – and you can read the BoE’s explanation of what they are doing here. The amounts of money they are prepared to ‘print’ (metaphor) or, create with a computer may be as much as £50Bn.

< – Hang on, there’s a fun bit coming – >

The UK has already spent £175Bn doing this since March of 2009 as the full effects of the banking and financial crash became apparent.

The whys and wherefores of these processes are apparently, complex, but they do all stem from our history and from one story in particular. It is a tale about a Scottish adventurer called John Law and his time in France at the start of the 1700s. A very clever Canadian filmmaker called Richard Condie made a film about Law’s story in 1978. I think it is still great now and I recommend you spend (geddit) ten minutes of your day watching and listening to the story about the man who invented paper money for us all.

John Law and the Mississippi Bubble – great animated storytelling

Updated at 12.30pm: The Bank has announced it will extend the process of quantitative easing by another £25Bn. Larry Elliott of The Guardian has the story here.

The Guardian is running a live blog on the market reaction to the government’ second bank bailout here.

Updated 15.25: The FT analyses what has happened to the Royal bank of Scotland, formerly the world’s biggest bank, here. The most interesting point is the almost complete (and effective) nationalisation of the institution in the thirteen months since the collapse of Lehman Brothers.

In the FT Gideon Rachman offers a short analysis of the Conservative conference and Shadow Chancellor George Osborne’s speech. James Landale offers a longer round up for the BBC.