Friday, Mar 26, 2010
Budget 2010: Labour is stealing from our children's future to buy votes
Telegraph: Budget 2010: Labour is stealing from our children's future to buy votes
If you want to know what would become of Britain were Labour to win another five years in power, turn to page 189 of the Treasury's Budget book. In Table C3 – Current and Capital Budgets – there's a line showing Public Sector Net Debt, ie how much we, as a country, will owe our creditors (not including personal borrowings). Now, cast your eyes over the column "2014-15". Yes, according to the Treasury's forecasts, the United Kingdom will nearly double its indebtedness from £776 billion (in 2009-10) to £1.4 trillion.
Posted by cat and canary @ 09:37 AM (1141 views) Add Comment
17 Comments
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1. cat and canary said...
Consider this: the UK's deficit (annual shortfall) is scheduled to drop over the course of the next five years to £163 billion, £131 billion, £110 billion, £89 billion and £74 billion. But total state debt in the same period will rise to £952 billion, £1,095 billion, £1,218 billion, £1,320 billion and £1,406 billion
2. mark wadsworth said...
Yup. If future generations are to be burdened with debts, then at least let them be burdened with mortgage debts to keep house prices up etc.
AFAICS, it makes no difference whether future generations are paying extra tax to one bunch of rent-seekers (the current generation of quangocrats) or paying extra mortgage to another bunch of rent seekers (the current generation of Home-Owner-Ists).
3. mark wadsworth said...
While we're still on the topic, here's a drawing I did yesterday evening. Took me about twenty minutes and as long again to scan it in:
4. layers said...
Why have you made him so fat MW?
5. mark wadsworth said...
I didn't 'make' him fat, I just looked at a photo of him and let my hands do the work. My hands appear to have converted his smugness into fatness.
6. 51ck-6-51x said...
heh:
"Comments have been disabled on this article while we make important enhancements to Telegraph.co.uk
You will be able to leave comments again on Friday"
7. happy mondays said...
Good sketch Mark, you have been kind to him!
8. str 2007 said...
And who saw the clip of him yesterday on telly from I think the early 80's sporting long hair (not white) and a beard.
Looked quite a cool hippy, (well as cool as hippies can look) you really wouldn't believe it was him.
9. luckyjim said...
10. greenmind said...
Clearly on the coke!
11. cat and canary said...
ehe heh heh heh, Darling was a cool hippy type... he must feel quite nostalgic living next door to someone off their head!
12. icarus said...
More Randall hysteria. Consider:
- a sustained fall in nominal GDP for the first time ever is the major cause of the deteriorating debt/GDP ratio
- much of the deficit increase is due to a fall in government revenues and recession-related social security expenditure
- the real cost of government borrowing is historically very low
- spending plans to 2007 were not excessive given GDP forecasts (if there's any fault it's in not anticipating the recession and relying too heavily on revenues from finance and housing)
- you cannot use monetary stimulus, so any stimulus has to be fiscal
- UK's fiscal stimulus is one of the lowest in the G20
- the UK's banking 'stimulus' was just about the highest, but Randall doesn't even mention this
- the economy is not operating at full capacity, so there's no reason to assume that a fall in government spending would be followed by a rise in private spending (IRs are already low and consumers and businesses are retrenching).
In the early '80s Thatcher's government was spending close to 50% of GDP, in 2003-7 that figure was about 40%. The difference was that govt revenue in the earlier period was about 45%, so the gap was fairly narrow, in 2003-7 govt revenue was under 40% but then it was allowed to fall for the purpose of combatting the recession.
In Thatcher's time there was a need to reduce govt borrowing (the real cost of govt borrowing was high) to bring down IRs and weaken the strong £. She could also rely on windfall taxes on oil and banks. She may also have been right in thinking the government sector was crowding out the private sector (govt borrowing was helping to keep up IRs, more of the economy was in nationalised industries and council house building, and marginal tax rates were high). But times are now different - the current recession is not due to overheating and inventory build-up - it's a debt-fuelled financial crisis that's resulted in a collapse in demand and a significant rise in unused capacity despite low IRs that make monetary stimulus impossible. Hence the view that government deficits are no longer crowding out the private sector but crowding it in.
13. mark wadsworth said...
Icarus, that's not true on the facts:
1. "a sustained fall in nominal GDP for the first time ever is the major cause of the deteriorating debt/GDP ratio"
Nope, GDP fell by 6%, so if debt-to-GDP had been 40% beforehand (the Golden Rule), it would only go up to 42.6%. It would not go up to 60% or whatever they are hoping for.
2. "much of the deficit increase is due to a fall in government revenues and recession-related social security expenditure"
Nope. The 'structural deficit' (i.e. endemic waste) has been about £50 billion for years. Tax receipts fell by about 6%, i.e. by about £30 billion, welfare went up by no more than £10 billion. That gives us a theoretical deficit of £80 billion, not the £170 billion they are talking about. The other £90 billion is additional spending - on bailing out banks and filling your boots before you get kicked out of office. These are facts and figures - you can go and look them up at HM Treasury's Public Sector Finances Databank.
3. "the real cost of government borrowing is historically very low"
Firstly, it's real interest rates (interest minus inflation) that matters, not nominal rates.
Secondly, it's marginal interest rates that matter - each extra 10% of GDP a country borrows adds about 0.2% to the overall interest rate, tables here. The notion that Germany pays lower interest rates than other Euro countries is a complete myth - it's in the middle of the table in terms of debt-to-GDP and average interest rate.
So the marginal interest rate is much higher:
e.g. borrow £500 @ 4% = £20.00
borrow £600 @ 4.2% = £25.20
So the extra £100 costs you an additional £5.20 = marginal interest rate 5.2%, not 4%.
14. icarus said...
@ mark w - been busy, sorry to get back so late:
1. Until 2007 there was a gap of about 3-4 percentage points between annual govt spending as a % of GDP (about 41-42%) and annual govt revenue as a % of GDP (about 38%). By 2009 the fall in GDP brought those %ages, respectively, to 44% and 35%, a 9-point gap and growing for another year or two.
2. Total debt/GDP was around 40% until the crisis - historically normal. It's projected to rise to 80% by 2013-14. In 2007 before the crisis the Treasury expected to collect about £600 bn in 2009-10 and it ended up collecting £500 bn. Spending went up to £670 bn by 2009-10 from the £647 that was forecast in 2007. Most of this extra expenditure was accounted for by social security spending (up from an expected £152 bn to £165 bn, tax credits (£19bn to £22bn and capital expenditure that was brought forward (£54bn to £63bbn).
3. My statement was based on the difference between 25-year gilt yields and average inflation over the next 25 years. In the 70s and early 80s, for example, gilt yields were around 12-15%. Inflation over the next 25 years was around 3-5%, so the real rate was around 8-10% for much of the time, compared with a real rate over the last 10 years of maybe 2-3% (but admittedly unknown future inflation).
I'd guess the major causes of the debt surge, more or less in order of magnitude are: loss of revenues due to the recession / over-reliance on bubble revenues, structural deficit, cost of bank bailouts, and increase in spending that's due to the recession
15. icarus said...
I could have put the first two points togrther: fall in GDP and the associated large drop in revenue and (smaller) rise in expenditure.
16. mark wadsworth said...
Icarus: "In 2007 before the crisis the Treasury expected to collect about £600 bn in 2009-10 and it ended up collecting £500 bn"
If that is true, which I doubt, then we must have marginal tax rates of more than 100%. GDP fell by 6% from £1,500 billion, i.e. by £90 billion, so how can tax revenues fall by more than that? Sure, SDLT revenues were halved, but the take only went down from £10 billion to £5 billion or something, and IHT receipts went down from £3 billion to £2 billion. SDLT and IHT are only a tiny percentage of overall revenues.
Your figures on increase in welfare are extra £15 billion, which seems about right. So the lion's share - about half - of the £170 billion deficit must be bank bail outs (and to a lesser extend the ever increasing and ever more expensive quangocracy).
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