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With Britain's sagging economy go Labour's fortunes

From Tuesday's Globe and Mail

LONDON — The Canadian economy is rocky, and Canadians will pay for today's extra spending with higher taxes, but comfort yourself mildly by casting a glance at Britain.

Britain has hit the worst slump since 1945. Its borrowing - a staggering $250-billion this year alone, and $1.4-trillion over the next five years - will take a decade or more to pay off, assuming a return to impressive economic growth. The City of London, on whose tax revenues Britain floated to a decade of aggregate prosperity, has 150,000 financial-services people out of work. The economy is to contract by about 4 per cent this year.

Britain's travails offer hints, in one sense, of what lies ahead for Canada. In the recent British budget, taxes went up for those earning more than $300,000, departure taxes are set to skyrocket at British airports, duties rose on cigarettes and alcohol. In other words, the first evidence appeared of a fiscal golden rule: From higher debt and massive deficits in due course flow higher taxes, one of those elementary facts that are apparently taboo to mention in Canada.

With the sagging economy go the fortunes of the Labour government of Prime Minister Gordon Brown. The journalistic jackals of the right-wing press, led by tabloid-in-disguise the Daily Telegraph, are in full cry against him, as you would expect, but even the middle-of-the-road papers describe a fin de régime mood in Labour circles.

Friends, including those inclined to support Labour, seem reconciled to their party's defeat in the election next year. That most dreaded of political viruses for any incumbent - time for a change - seems to have infected the middle classes, on whose votes New Labour rode to power under former prime minister Tony Blair.

A week, as British prime minister Harold Wilson once quipped, can indeed be a long time in politics, and the unexpected is often the expected in politics as in life, but a pervasive sense of defeat seems to hang over the Brown government, witness to which is the internal Labour sniping, the leaks to lobby correspondents in London's incestuous press, and the apparent inability of the government to avoid being tripped up by tiny issues.

The British version of the Jean Chrétien-to-Paul Martin handover seems to be playing itself out, although with less of the venom that dripped into the Liberal handover in Canada. Mr. Brown just does not possess Mr. Blair's political gifts; his instincts are lacking, his touch faulty. Since Mr. Brown built his pre-prime ministerial reputation as an effective chancellor and therefore economic manager, it does him no good to see the economy in a tailspin.

Under Mr. Blair, of course, Labour greatly expanded spending on public services, notably health, and, with Mr. Brown as chancellor, put more money into anti-poverty programs. (Labour also promised never to raise taxes on high incomes above a 40 per cent rate, a promise now broken with a 50 per cent rate.)

Alas, a compendious report last week revealed that Labour had been unable to change the poverty profile. The very rich did very well, so that the gap between them and the rest of the British population grew. The plutocracy in Britain, in this sense, resembled its Canadian counterpart, even if neither so enriched themselves as the American very rich did in the Republican years.

Now that the City has been staggered by bank losses and huge government subsidies, the government cannot count on corporate and personal income tax revenues from that source.

That fact, combined with massive new spending to combat the recession, will leave Britain with a string of deficits leading to a 79-per-cent debt-to-GDP ratio in 2013, far higher than in Canada. That estimate presumes the government is right that growth will return to 3 per cent in two years, something few independent forecasters believe.

It has been rather hard for the British to take, since their pound was riding so high and their economy had been performing rather well. The collapse has played into the hands of the opposition Conservatives, who decry what Labour is doing or failing to do, while carefully avoiding at this stage explaining in detail what they would do differently.

Shades of Canada's Liberals.

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