The Week: 24 - 28 November

Rodney Hobson’s popular column, The Week , enjoyed by many Hemscott.com subscribers, is now available on Morningstar.co.uk. The Week provides commentary on the week’s biggest business stories. Rodney Hobson is an experienced financial journalist who has held senior editorial positions with publications in the UK and Asia.

Hard times

Desperate times call for desperate measures that unfortunately draw attention to how desperate the times are.

Why do I feel that the pre-budget statement was a hotchpotch of ideas thrown together in a panic? I’m sure that is not true. Gordon Brown, who is still First Lord of the Treasury, Chancellor Alistair Darling and their Whitehall teams have had plenty of time to come up with a range of measures to offset the recession that we are surely already in.

Certainly there is a comprehensive list of wide-ranging proposals to keep the economy going. Yet nothing looks as if it will do much good on its own and the whole package does not seem to hang together.

Despite a fair amount of carping in the press over the VAT reduction, I think this will help. VAT has been reduced by one seventh, a sizable cut. How strange that the European Union, so keen to unify tax rates across the continent and a keen exponent of VAT because of all the paperwork it creates, has remained silent at this outrage to its sensibilities.

Retailers have managed perfectly well with sales tax changes in the past and petrol stations, pubs and tobacconists have to cope with tax rises every year. At least this measure takes effect now, which is when the recession is happening. Proposals for next year are akin to closing the stable door after the horse has bolted.

I cannot feel any enthusiasm for the increase in National Insurance. The imposition on employees is a rise in income tax under a different guise while the extra that employers will pay is a tax on employing people. Surely as jobs are being lost by the day the last thing we want is to discourage employees from hiring or retaining staff.

The proposal to raise taxes after the next election, which clearly is not going to happen until the middle of 2010, is extraordinary. There is no guarantee that the economy will be in a sound enough state by then to stand tax rises without provoking another recession. Brown’s newly won aura as the man whose ideas have saved the world will gradually give way to the realisation that this is the party leader who is going to put up taxes.

If the Conservatives win, as is quite likely despite Labour’s surge in the polls, they will have the choice of going ahead with the tax increases and blaming Labour or scrapping them and claiming the glory.

Having trumpeted the end of boom and bust, Brown is forced into a scramble to avert a bust. Had he not been quite so boastful in the past he could have got away with a mild recession and perhaps even a deep one as long as it lasted no more than a year. We would have been pulling out nicely by the next election. After all, the Tories went through three downturns and stayed in office for 18 years.

Now, however, his reputation as custodian of the nation’s finances calls for extreme measures.

Perhaps I am being churlish. I hope I am. Certainly the general reaction to the pre-Budget statement has been positive with Labour’s poll standings rising, the stock market moving higher and consumer confidence showing tentative signs of recovering. With the Footsie holding just above 4,200 points, it is tempting to think that the worst is over at last.

Yet the upside is surely limited at this stage. It is hard to see the index ending the year above 4,400 as shares will run into profit taking. On the other hand, any fall below 4,000 could spark another attack of jitters.

Hard choice

I was intrigued to see a letter in The Times this week pointing out that our contribution to the European Union would, if we dropped out, just about pay for the banking bailout. It’s a sobering thought.

Would you rather pump billions of pounds into an organisation run by people who are answerable to no-one and who happily squander other people’s money or pump billions into several smaller organisations run by people who are answerable to no-one and who happily squander other people’s money?

Hard luck

No-one wanted Woolworths when it was alive, yet the administrators are confident of selling it now it is dead. A headline in the Daily Telegraph today proclaims: Woolies bidding war is brewing.

It would be funny if it wasn’t tragic.

Shareholders should not suddenly start to believe that they will get anything much out of the wreckage. But if you believed that Woolworth shares were worth buying in the first place, you will believe anything.

This article originally appeared on Hemscott.com. Morningstar and Hemscott are now one company. You can see the original version of this article on the Hemscott web site.