Andrew Busch
Director, Global
Currency &
Public Policy
Strategist
BMO Financial
Group

Today, the United Kingdom's Finance Minister Alistair Darling release some bomb shells during his budget statement to Parliament.

Here are the fun facts:

"Alcohol duties will go up by 2 percent from midnight tonight. There will be an increase in tobacco duty of 2 percent from 6 pm tonight. Taken together, these measures will raise over 6 billion pounds by 2012."

"I will continue to monitor oil prices, but I expect that fuel duty will increase by 2 pence per litre in September, and then by 1 penny a litre above indexation each April for the next four years."

"As the economy recovers and wages start to grow again, it is right that we take additional steps. I believe that it is fair that those who have gained the most should contribute more. Only those with incomes over 100,000 pounds a year -- or 2 per cent of the population -- will be affected....In order to help pay for additional support for people now, I have decided that the new (top end) rate will be 50 per cent, and will come in from next April -- a year earlier."

"In November, I also announced that I was reducing personal allowances for the very highest earners with incomes over 100,000 pounds. These allowances are worth twice as much as those of basic-rate taxpayers. I have now decided to fully withdraw the benefit of that allowance for those with incomes over 100,000 pounds from next April."

"From April 2011, I will restrict pension tax relief for those with incomes over 150,000 pounds so it is gradually tapered to the same 20 per cent rate the majority of people receive. We will consult on implementation."

Why all this revenue raising?

Massive borrowing to pay for government stimulus and bailout programs. "UK net debt, which includes the cost of stabilizing the banking system, will, as a share of GDP, increase from 59 percent this year, to 68 percent next, 74 percent in 2011-12, 78 percent and 79 percent in 2013-14."

The market reaction has been sharp and severe. The British pound has been aggressively sold on the announcement with a drop of 200 points in less than 30 minutes. The FTSE is dropping and UK bonds are falling as well.

Is this a glimpse into the future of the United States? Absolutely.

The US budget deficit is already at a record $957 billion for 2009 and the US Treasury is likely to expand new borrowing by over $2.3 trillion this fiscal year. With unemployment rapidly climbing and corporate profits in a free-fall, tax receipts are tanking.

The lesson from the UK is that surprises to the upside in the level of borrowing and the level of taxes are going to be the norm rather than the exception. By softening the blow now, we're going to cut off growth rates in the future through higher taxes and higher borrowing by the government that forces up interest rates.

This blocks the sun over those sprouting green shoots in the economy.

• Read what our other contributors are saying now on CNBC.com

________________________

POPULAR GUEST BLOG POSTS

• 

• How to Date a Wall Street Man 

• 

• Getting Ready to Retire? Start by Rightsizing Your Home 

• 

• Exporting an Inflation Tsunami 

COMMENTS

More Comments

 

« First | « Previous

Next » | Last »

Thank you for joining our discussion. Your comment has been posted.

ADD COMMENTS

Please Sign In or Register to participate.

In order to add a comment you must click here and accept our terms and conditions.

Edit Screen Name

Please sign-in/optin or register to be able to submit comments.

Remaining characters

CNBC welcomes your contribution. Please respect our community and the integrity of its participants. CNBC reserves the right to moderate and approve your comment.

Sorry, we are no longer accepting comments.

PREVIEW COMMENT

Your comments have not been posted yet.
Please review your submission to make sure you are comfortable with your entry.

Your Comments: