Fire sale

G. Brown, in an effort to be seen to be more positive, i e not cutting expenditure, than the Tories, is embarking on a quick sale of the few assets left with marketable value.

This is gesture politics.

1) The annual budget deficit for the current year is likely to be in excess of £175 billion, even if we accept his rather optimistic assumptions that economic growth will suddenly appear. (Most experts think that the deficit will be closer to £200 billion, given that unemployment is likely to continue rising for many months yet.) Next year, even with his heroic assumptions, it is likely to be well over £100 billion, because of the unemployment situation and the delay in recovery of business profits.

So the chancellor will have a combined deficit over two years of approaching £300 billion, and additional interest costs of perhaps £10 billion. So his immediate sales which will realise £3 billion over two years will not meet the increased deficit interest costs. It should also be born in mind the assets themselves have been producing an income stream in some cases, it is to be hoped, and these will be lost after sale. In addition there will be selling costs - advertising, negotiation and commission, etc.

There really will be a painfully small net amount with which to try to reduce the deficit.

2) This is not a good time to try to sell anything, especially as potential buyers will know the desperation of the government. Brown has already sold off gold reserves at a price barely a quarter of what they would fetch now, and experts are talking of a considerable further rise in gold prices, even a doubling. The sale of these assets seems to be a repetition.

3) It seems that afterwards he intends to requisition assets held by local authorities. There will be local opposition as it will council rates in the future, and may provoke legal action. So it is not clear how soon any money would be received, and again the value would be small compared to the accumulated deficit.

The action seems to be overtly political. It is also costly in the long run, piling yet more demands on future generations. In my opinion it will make a minuscule contribution to deficit reduction, but at much higher cost.