That will be another £18 billion then

There is no end to the borrowing.

In the Budget the government forecast £43 billion of public borrowing this year. Most forecasters now expect this to be around £65 billion, given the extra commitments added and the decline in tax revenues.

We need to add to this the £37 billion they plan to spend on buying banks shares. We also need to add the £18 billion they are borrowing to finance the cash and guarantees they have given to Abbey Santander to get them to take the deposit liabilities of Bradford and Bingley. The government has put an extra £3 billion capital into Northern Rock.

This adds up to a huge £123 billion of extra borrowing this year. That’s £2050 each for every man woman and child in the country.

Starting borrowing requirement £43b
Extra spending and reduced revenue in year £22b
Bank shares purchase £37b
Bradford and Bingley £18b
Northern Rock extra capital £3b

When the Bradford and Bingley deal was reported we were told that Abbey Santander had bought the deposits and branch network for a positive sum. We were not told that in order to buy these deposit liabilities the taxpayer of course had to put up a lot of cash. On the HMT website the detail is revealed. It states:

“The Financial Services Compensation Scheme has paid out approx. £14 billion to enable retail deposits held in B and B and covered by the FSCS to be transferred to Abbey. The Treasury has made a payment to Abbey for retail deposits not covered by the FSCS, amounting to approx £4 billion.” The FSCS was granted a Bank of England loan to be replaced with a government loan. The government stands behind the FSCS.

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5 Comments

  1. Posted October 29, 2008 at 5:40 pm | Permalink

    Borrowing ATM is problematic for nation states.

    Three European countries – including Austria, with a triple-A rating – have recently cancelled bond offerings (e.g. raising money by borrowing).

    The reason they have cancelled is because those who would lend them money are charging more than those countries want to pay. This is happening because those who would lend are seeing a lot of risk – typically in the banking systems. (In Austria's case, their banks look exposed to Eastern European economies).

    We of course have much the same problem – a problematic banking system. Borrowing will be expensive. The State needs more money now than is has for a long time, because of its extensive spending on the banking system.

    It's very easy to spend other peoples money. The Government does it all the time.

  2. Posted October 29, 2008 at 8:00 pm | Permalink

    George Osborne was completely right: the cupboard is bare. They are borrowing to keep up, not to invest or to follow Keynes. There are no new Grands Projets (Big Projects), although there are a lot of left over splurges (Olympic Games, ID Cards new ships).
    We are so used, now to hearing about tens of billions.
    Last year, for instance, as far as I can tell. Some 30 billion (only) went on Education. That equals the Bank charges listed above.
    The armed services, apparently, took the same £30 billion (only) which equals (more or less) the borrowing requirement.
    £123 is sort of getting near the amount spent on the Social Services.
    This government really has lost its moorings, hasn't it!

  3. Posted October 29, 2008 at 8:37 pm | Permalink

    The bit that is difficult to fathom is how much of the activity you mention above is in foreign currencies. Are we paying Pounds Stirling to Abbey (Santander) or Euros or US Dollars.

    Is the pound falling because these foreigners don't want pounds but want paying with the worlds first; second or third reserve currency, (US Dollar; Euro or Yen respectively)? What happens to UK external debt obligations, equivalent to $10.5 trillion; a fifth of all the worlds external debt?

    JR and Redwoodians have blogged on this site for reductions in UK base / repo' rate. I am not so sure.

    We import a hell of a lot, oil; gas and food, to name but three primary commodities. Practically all of these are traded in US Dollars or, at least pegged to that currency. If the Pound falls, as it will, if base rate is dropped, what happens to the price we will pay in the high street?

    The low pound will reduce our imports of fifty inch plasma TVs but are we prepared to reduce imports of oil and gas? Our economy and its growth are totally dependant on energy imports. Reduce energy imports; reduce GDP growth; spend much longer paying off our debts.

    Regardless of politics, two of the three basic sectors of our economy – the government sector and the household sector – are totally dependant on the third corporate sector; down to the last pension payment you get before you fall off your perch. Reducing the interest payments on their debt would be nice but it has implications, as above. Reducing the tax and regulation burden on them will improve their bottom line just as well. We have to do this NOW.

    A while back we blogged on this site about a "world currency"; well, I think the yanks may have engineered the US Dollar to be that world currency; for now. I am trying to work out how the US will destroy the competition; that is, the Euro and the Yen. Being the printer of the worlds currency gives you a massive advantage when your home economy is in a hole. If there is a problem; print a few more dollars, the rest of the world will buy them and hold them, cash or paper. Who needs Crack when you are addicted to Dollars.

    If you missed it, try and get the download from BBC World Service Radio (the only bit of the BBC worth saving). Titled "The Future of the Dollar" the podcast/download should be up on the site in the next couple of hours. http://www.bbc.co.uk/worldservice/

    Reply: We are paying pounds to Santander because they have to pay back depositors in pounds.

    • Posted October 30, 2008 at 12:06 pm | Permalink

      If there is to be a world currency, it has to be a completely new issue managed by a world central bank and to run alongside existing currencies. America's problem with trade deficits means that the Dollar will become more erratic as liquidity is traded against imported inflation. The Euro, being a political currency, is only as good as the European project and for this reason is not the long term solution. The answer can only be a new international currency, issued by a world central bank with its value being backed up by access to trade. Those signing up to the new currency should agree not to trade with non-members, this will very quickly make the minds up of any doubters. A world central bank is an idea that is long overdue. It is logical and inevitable.

  4. Posted October 30, 2008 at 9:06 am | Permalink

    Just a thought, but is it remotely conceivable that a Labour government which knows it is condemned to lose the next election, is now working overtime to ensure that an incoming Conservative government is so tied up with government debt and inflation that it will have absolutely no room for tax-cuts and will probably spend most of its tenure under a sluggish high interest-rate economy?

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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