How BIG does the Elephant in the Room have to get?

IF THIS was the Famous Last Stand of Fiscal Prudence, avert your eyes. As a defence against the debt onslaught Britain now faces, Alistair Darling's performance on Wednesday was about as convincing as launching D-Day without landing craft, or defending Rorke's Drift without rifles!


Did he mouth the words in the chamber of a "Pre-Budget Report" Or was it actually “Pre-Election Report.”

And the glove puppets text was all from the hand of Gordon Brown : a manifesto bristling with hopelessly inadequate micro-measures for business and the big rhetoric designed to protect the government's voting interest and shore up Labour's “honest poor” core support, that has slipped away to extremist parties like the BNP.

And for the rest of us? In financial terms, well you might as well try and “shore up” the sandcastle in front of the 100ft Tsunami that’s headed this way.

There was nothing in this statement to give our economic recovery hopes a boost.

In the words of Lib Dem Treasury spokesman Vince Cable: "This is a good budget for bingo and boilers but not much else."

Corporation tax help for small business what little there was, is welcome. But the big blaster needed to make that 3.5 per cent growth rate for 2011 at all credible – such as a slashing of say corporation tax from 28 per cent to 20 per cent – was absent.

What Mr. Darling should have done in the PBR was unveil a fiscal plan over the next Governments lifetime to return to 2000 levels of spending, adjusted for inflation and population growth (or should that be immigration!) That would mean cutting spending from £661bn to £475bn, a reduction of over £186 bn i.e. 30% or so. That would eliminate the £178 bn deficit (is this secondary school mathematics or what!) with enough left over for some pro-growth tax cuts to stimulate the economy.

Impossible the government says. Is it really? If management consultants can go into profitable (and UK Plc is anything but profitable) businesses and cut expenditure by 20% (the magic bullet figure) then surely its easy to cut 30% from Government sector expenditure. After all even factoring in inflation and increase in population immigration, public spending has risen by 45% in the last ten years, has GDP output risen by the same level to fund it? Look at the deficit and debt elephant and you will find the answer.

Here’s just one example (from The Guardian’s jobs page) of how the government is aiming at a 20% cut in hot air but increasing taxpayers wasting of money; and there are thousands of these non jobs out there.

Low Carbon Zone Officer
An outstanding opportunity has arisen for a Low Carbon Zone Officer at one of London's most progressive borough councils. You will play a pivotal role project managing the delivery of Low Carbon Zone projects in relation to environmental sustainability, renewable energy technologies and insulation works designed to achieve a 20% reduction in CO2 emissions. Additional duties will include extensive liaison with Central Government organisations, development of strong communications and engagement strategies to promote Low Carbon Zones and maximise participation of residents and local organisations. Successful candidates will have a background in environmental sustainability, climate change and carbon reduction programmes.

Salary for a 38 hour week: £35,153 p.a.

Nice work if you can get it and translated means; to sit on a comfy chair, tea and ginger snaps in hand contributing even more to Co2 emissions by talking in committee and council meetings.

As if this wasteful expenditure wasn’t enough; The UK politicians on their emission burning jolly in Copenhagen have decided to propose we divert 10% of the UK’s overseas aid budget that will ultimately fund the Global Climate change fund estimated to reach £90 bn by 2020 (and guess whose going to pay for that then) towards combating “climate change” instead of health and education of the worlds poor.

Sanctimonious surrender (I can’t use expletives, although I desperately want to) towards the new global religion. So let’s take money away from the sick, ignorant and the poor then, increase their misery and suffering by denying 75 million children an education and shortening the lives of 8.6 million HIV/Aids sufferers, all based on incomplete manipulated science and the furtherance of a sinister objective.

But I digress;

Ultimately though it all boils down to a political problem not economic one because with so many people now on the Govt’s payroll - directly or indirectly as above, with so many people who get more in benefits than they could ever pay in tax – the “client state” has become enormous. That is the true legacy of Brown and Blair and will we ever get a future Government with the brass cahoneys to deal with it?

It’s a serious question: and I think we all know the answer.

But if UK Plc has any chance, that is the order of magnitude of political and moral courage needed to create the Private sector “wealth generating” jobs and soak up the inevitable unemployment from the public sector that needs to be slashed out of its suckling on the milk and honey of private enterprise.

Instead, Gordon and Alistair’s solution is to send us naked lying on some driftwood into the “Perfect Storm”, and we all know how that ended. It can fairly be said of this Pre-Budget Report (PBR) that it is one of the most appalling documents ever put before the British public in peacetime.

Never before has a UK government incurred so much borrowing and debt.

Never before has a Treasury document so marked the end of one era in British politics.

Never before has a government looked so lost and utterly helpless in the face of what needs to be done – and what it has so flinched, fudged, and dithered from dealing with.

Although the forecast for this year's budget deficit is raised only a little – from £175 billion to £178bn – (hey what’s £3 Billion here or there) this Elephant in the room of growing debt is impossible to miss.

Total public sector net debt for 2010-11 is now “guesstimated” at £986bn, up £9bn from the figure presented in the Budget earlier this year. By 2012-15, that debt figure will have ballooned to £1.5 trillion.

The figure is equivalent to 78 per cent of the entire net worth of the UK. To put this in perspective, compare the government's utter absence of immediate action on this front with the Draconian measures announced by the Irish government, with cuts in public-sector pay, fresh tax increases and spending curbs in order to prevent the country's net debt from hitting 60 per cent of GDP.

Maybe instead of dealing with reality as the Irish have done Gordon and Alistair could try North Korea’s policy of dealing with their fiscal problems by “seizing” all our money and issue Monopoly currency instead, a lot easier to print and as an added bonus we could even colour photocopy our own supply.

Over-borrowed countries have been given an alarm call by the decision of rating agencies this week to downgrade Greek government debt. While the UK's AAA credit rating has looked safe up till now, lenders are now casting a cold eye on the mountains of government debt now coming on offer. In these febrile times, nothing can be taken for granted.

And that includes the UK government's debt projections. For while this PBR is a document of profound importance as a marker for the changed politics ahead, its debt projections should be treated with great caution.

This is because almost every single multi-year borrowing and debt projection set before parliament in Budget documents over the past ten years has proved to be a wild understatement of the actual turn-out. Try doing that for your mathematics exam and see what grades you get.

The first estimate of our net debt position for 2010-11 was given in the 2004 PBR. The figure was £574bn. It was raised the following year to £589bn. It was raised in successive years so that, by the 2008 PBR, the forecast was £729bn. This was raised yet again in this year's Budget to £792bn. The latest estimate is now £799bn.

The estimate of our net debt for 2013-14 was given in December last year at £1.1 trillion. The latest figure is £1.4trillion. This persistent under-estimation of the debt explosion has happened every year, almost without exception. Is there a pattern of behaviour here?

And the curse of the Treasury's Dr. Pangloss even works backwards. The latest figure for the net debt for the financial year just gone – the one ending in April this year – has now been revised up from £609bn in the Budget this year to £619bn.

But why should debt figures matter so much? Well this is why;

Next year, we (yes you and I as taxpayers) will be paying £44.4bn in debt interest alone – never mind the debt falling due for repayment.

That debt interest in 2010-11 will absorb the entire proceeds from capital gains tax, inheritance tax, stamp duty, tobacco duties, wine and spirits duties, beer and cider duties, betting and gaming duties, air passenger duty, the aggregates levy and Customs and Excise levies – Oh and this governments wonderful new wheeze to tax us more “the climate change levy” and still leave chump change of £1bn to find.

And this debt interest bill will rise sharply in future years. Little wonder many now fear our only way out of the debt trap is to let inflation rise and wipe out the burden in real terms. But if financial markets sense that is the plan, the price of government stock will be driven down and the yield on debt servicing driven up to compensate the holder of debt for that risk. Never mind the effect this will have on the silent compliant majority’s everyday lives.

According to OECD figures For the UK:

• In 2000, we had the 7th lowest public spending among the 30 OECD countries at 36.6 percent of GDP. In 2010, we will have the 6th highest at 54.1 percent of GDP.

• In 2000, we were the 16th most indebted country in the OECD. In 2010, we will be the 8th most indebted country.

• In 2000, we had the 7th lowest deficit in the OECD (in fact, we had a surplus). Next year, the UK will have a 14 percent deficit (10.4 percent of which is structural. That’s the most unbalanced budget of any OECD country.

So the pain of the “real” Budget is still to come, Gordon and Alistair have nowhere to hide anymore, for the reality of UK Plc’s plight is coming, mark this for “it will come to pass”.

Wednesday’s statement gave a glimpse of the pain ahead us little folk have to bear, with a further rise in both employer and employee National Insurance contributions and a 1 per cent ceiling on public sector pay rises – from 2011. “Lord make me chaste – but not yet” to quote St. Augustine – and "certainly not before the next election" he might have added had he lived today.

What we have got now is fantasy-land finance, fiscal beer goggles and a kleptomaniac's kidology.

But what is all too real is the hard truth of the belt-tightening ahead. Everyone and I mean EVERYONE (outside of No 11) knows it's coming, but politicians crunch up their eyes, stick their fingers in their ears singing “la la la la” while we all scream “listen”. Truly, the era of tax and spend, debt-and-borrow politics is drawing to a farcical close.

But can we bear the pain and pay the bill? AND just how BIG does the Elephant in the room have to get?

That is the question.



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