Some briefing from the government suggests they are not willing Ā to agree further substantial increases in public spending as they did for 2025-6 in their first budget, or as the previous government did from the outbreak of the pandemic in 2020. Given the large cash and real increase in both health and welfare spending in the last five years attention should shift to getting value for money for all the increases agreed so far this decade.
I will update my thoughts on controlling public spending whilst improving core public services in a number of blogs. Today let us begin with the second and third largest increases in spending in recent years, Bank of England losses and debt interest.
There is no need to restate the detail of how the Bankās losses could be slashed if they stopped selling bonds in the market at much lower prices than they paid for them and if they adopted the European Central Bank approach to paying interest on commercial bank reserve deposits.
When it comes Ā to debt interest the numbers surged 2022-4 thanks to the Bank losing control of inflation. The U.K. has issued substantial indexed Ā debt. It then charges to public spending the increase in repayment value of the debt as it occurs, though the Treasury does not make these cash payments. On maturity the government borrows the enhanced cash cost of repayment to meet the extra Ā bill.
As the Bank cannot be trusted to keep inflation low it would make sense to stop issuing indexed debt or greatly reduce its quantity, to avoid any future surge in these accounting costs. To control the rest of the debt interest programme the government needs to reduce the build up of Ā borrowings. Bringing spending and tax revenues into line is the obvious way to do this but governments find this difficult.
In order to speed transition to less borrowing government should in the short term have more recourse to selling assets it does not need to own. It can get on with the sale of Nat West, Channel 4, investments held in the U.K. Infrastructure and British Business banks, surplus property, local government investment holdings, and other assets.
The aim of lower borrowing should be to get the average interest rate down. The last budget put the 10 year rate and some related mortgage costs up. With a lower deficit and better spending controls it would be possible to lower the average borrowing rate by say a quarter which over time would bring down borrowing costs from current elevated levels.
December 9, 2024
With the waste of space at the BoE and Rachel, chess champion and retail bank (etc Ed), I fear your wasting your time
2Tk could stop the bond sales at any time but someone is making big money.
Nothing this government or indeed the last one does is to benefit the voters.
We are governed by supra national outfits who have their own agenda
That’s to bankrupt the west
Donald can’t start soon enough
December 9, 2024
Good Morning,
Treasury Dept. owns 100% of the BoE. If the BoE makes a loss then the Treasury Dept. makes the same loss. It’s an accounting issue. It’s all about Money Supply, as far as Treasury is concerned.
BoE can ‘create’ all the money we need, PROVIDED foreigners want to buy our stuff and pay for our services. Since we’re making less stuff, that’s going to be a problem, see trade deficit.
https://tradingeconomics.com/united-kingdom/balance-of-trade
A bit more interesting and strange, look how much US Treasury bonds UK owns.. 3rd largest foreigner…why?
https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html
December 9, 2024
Those US Treasury Bonds are the cost of the ‘Special Relationship’ š
December 9, 2024
Seems so. At least Trump judging from his appointments so far is sound on the net harm vaccines and the lunacy of rip off intermittent energy and the net zero religion. Alas Kemi, Coutinho etc. are still not.
JR says āthe Bank losing control of inflationā no they and Sunak et al actually deliberately caused the inflation using QE, currency debasement, net zero, car market rigging, energy market rigging and tax borrow and piss down the drain policies.
Has Sunak corrected his Covid Vaccines were safe lie to the House of Commons yet? The dire statistic are very clear indeed (despite the governments attempts to hide this) and were very clear – even when he made the absurd claim.
December 9, 2024
Bailey is alas far worse than just a waste of space apaointed by the enforced Covid vaccine dope chancellor Javid. He has done vast and predictable harm to the economy. Reevesās budget for growth?
I assume this sarcasm – like complementing Trump on his wonderfully self effacing extreme modest.
December 9, 2024
Be it government or houshold, borrowing to cover excess spending, and then borrowing even more to cover the cost of the initial borrowing seems a road to financial melt down. It has all the symptoms of a national addiction. The movement is from fix to an even bigger fix. National Debt confirms this. Government needs a long period in rehab.
Current government is hooked irretrievably on spending other peoples money on the charitable support of lost causes, activities that are never designed to make a profit, but approve their imagined virtue. To date they have done nothing, nor will they ever do anything to enhance individual or national wealth. They now have the UK plastic card and will spend baby spend until the meaning of the word investment changes to proflegacy.
December 9, 2024
They have only just bought over 10% of Nat West. What do you mean get on with the sale?
December 9, 2024
@ MBJ – Economic Secretary Siddiq seems to think most recently they sold (on 11th., November) – see https://hansard.parliament.uk/Commons/2024-11-18/debates/24111817000010/NatwestGroupGovernmentShareholding
December 9, 2024
Probably more is spent on waste than any other area of public spending, as well as causing more for those who have to pay for it: Taxpayers.
December 9, 2024
It is a little commented on issue that the BoE has issued far more index-linked debt (as a proportion) than any other G7 economy. In USA it is around 9% of the total, France 11%, Germany 1%, but in UK it is 25%. It is suggested that one reason for this is that there is a strong demand for it from defined benefit pension funds. As you point out having such a high percentage is fatal when you also fail to keep inflation low – with conventional gilts inflation is somewhat beneficial as you can “inflate away” the debt, but with index-linked you get punished. I agree that given the BoE inability to control inflation they should stop issuing index-linked debt and also address the demand side by switching all new hires across the entire public sector onto defined contribution pension schemes.
December 9, 2024
Roy, if the government stop issuing indexed link bonds no one would buy them.
December 9, 2024
@ Ian Wraggg – true, but recall the government’s main reason for issuing debt is to meet the needs of the buyers thereof rather than for any other purpose. (It does not of course need to sell debt to fund itself.)
December 9, 2024
@ Roy Grainger – I had seen predictions suggesting we might be entering an era of deflation when of course indexed debt might be attractive to issuers. Perhaps the Debt Management Office shared such view.
December 9, 2024
A Government which genuinely didn’t want to make substantial increases in public spending wouldn’t behave like this one. Everything they are doing is increasing spending and cutting revenue. It is causing Stagflation … and they are doing it deliberately.
“The problem with Socialism is that you eventually run out of other people’s money.”
They’re not quite there yet. But it’s coming.
December 9, 2024
The political class that has been in charge since 1997 (when there were signs of growth and spending under better control) has been addicted to rising government debt under the spurious claim it is for “investment”. It is beyond redemption. More and more voters are slowly beginning to recognise this which is why some are turning to Reform. Reform at least recognises the problem and has the declared aim to cut government spending. If they had any sense they would either pinch your ideas or, even better, ask for your advice on an action programme to cut government spending. By 10% would be a good start. That would be brutal but necessary.
December 9, 2024
But it wouldnāt be brutal. Much more than 10% is wasted on frivolous spending.
December 9, 2024
I believe the level of public debt that’s being passed down to the next generation is criminal. I can see some justification for national debt when it comes to pensions for UK citizens, but the government just uses borrowing to patch up their spending on waste.
Look at the finances and decide what proportion of debt needs to be paid down each year. Ration state pension and benefits according to what’s left. It would be a great help if government stopped spending on their vanity projects.
I believe in socialist policies, but where possible move them from the state sector to the voluntary sector.
You want healthcare for lifestyle diseases, take out insurance to cover it or crowd-fund.
You want the country to take in asylum seekers, open up your own home to take some in and pay their costs.
Stop loading the liability on the tax payer, many of whom struggle to pay rent.
December 10, 2024
In the speech of most politicians there is no distinction between spending and investment.
They only use “investment” because it sounds virtuous
December 9, 2024
I think you need to become far more bold in what you ask for with regards to public spending as it is clear now that there are vast parts of the public sector and civil service that are acting against the best interests of the UK and they need firing with immediate effect. The start would be the DEI groups and their proponents but it is clearly far more wide spread than that. Overall if we dont stop the ongoing march over the public sector we are going be be in all but name a socialist country, where the public sector is the main employer in the country, where it continues with an aggressive doom loop to extract more and more capital from the private sector. I guess you could call it a parasite.
December 9, 2024
In their tiny minds they’ve fixed the foundations by taxing us more. This money to supercharge the NHS, trains etc will result in greater capacity to work, travel etc. leading to higher growth and increased revenues. She undoubtedly thinks the debt interest and repayments are just other steps to get us b\ck to high growth. Now she’s off to Brussels to take instructions for next steps.
It’s so naive and numerically dysfunctional, but there’s been no counter narrative apart from your efforts and Reform. Conservatives can’t criticise because they ran the same policy. Hence defections although not too many please. The last thing Reform needs is past purveyors of these false solutions in their ranks. No Mel Stride, Hunt, May, Cameron, Cleverly, Sunak types please.
December 9, 2024
As we are citizens of a notionally democratic state it could reasonably be argued that we the people have allowed our government to overspend and rack up debt in our name. But it could also be argued that we have only got into this fix because of the imperfections of our national democratic system, in particular the irresponsible attitude of those who manage to wangle their way into control of the main political parties. Now we are in the position where our government is often under pressure to adopt policies which are in its own interest, both as a public institution and also as individuals within that institution, but not in the interests of the citizens it is supposed to represent. So when we hear, for example, that “the economy needs more immigration” that actually comes down to the government needing more immigration so that it has more people paying more taxes into its coffers to help service its debts. Likewise those who are termed “economically inactive” may be working hard looking after their family or doing voluntary work in the community, but as that is unpaid work it does not provide the government with the taxes it needs to keep the public debt Ponzi scheme going.
December 9, 2024
When it comes to national debt it is easy to criticise HMG and the BoE because they have gotten things so wrong A high debt level has been with us for too long through wasteful spending and the inability to keep track of money given out in certain areas.
Government has no intention to work to a budget, preferring instead to increase our debt. It really should be a golden rule, written in blood, that at no time, save for perhaps wartime, to operate the economy within what income was available. Ministers should be penalised for breaking this rule, otherwise it will be ignored.
The alternative is to keep on raising taxes and penalising the hard working people of this country, which is totally unfair but the deliberate approach taken.
Let’s not forget where all of this debt and deindustrialisation is taking us.
December 9, 2024
+1
Bryan, Common sense and Logical thoughts, sadly it will never catch on.
December 9, 2024
‘it would be possible to lower the average borrowing rate by say a quarter’.
Is that 25% lower, or a quarter point 0.25?
Reply 25% off the rate eg, 3 not 4
December 9, 2024
sounds good to everyone I would guess.
December 9, 2024
What you say seems eminently sensible.
Why are neitrher the present nor the previous government doing it?
December 9, 2024
The way to cut public spending is for the the Conservativesto offer a moratorium on spending on Net Zero for the lifetime of the next parliament. Their argument could be that this would allow more time for new technology to be developed which would make Net Zero by 2050 more affordable. It would also allow the motor industry to establish whether sustainable fuels could replace the rush to impractical and unaffordable EVs and for better alternatives to Heat Pumps to be designed.
Reform are the only party currently openly against Net Zero and this is going to become a big issue in the run up to 2029 – especially with Labour determined to follow Miliband’s deranged and unaffordable policy ideas. If the Conservatives stay in favour of Net Zero, there is no way of reducing public spending sufficiently to make a real difference.
December 9, 2024
Iām sure it wonāt be an issue. Most people have bought into net zero hook, line and sinker. Hard not to when every media outlet trumpets doom and gloom continuously. When every storm is blamed on climate change.
December 9, 2024
When Labour’s policies really start to bite voters in their wallets, it will strike home. Polling has shown that people are OK with net zero as long as it doesn’t seem to be costing them much. When they find out that they can no longer buy a new, inexpensive gas boiler, their electricity bills climb to pay for Milibands’s forest of pylons, and they cannot buy an inexpensive diesel or petrol car, they will be up in arms. And that’s before the power cuts start!
It amazes me that most people don’t even know that electricity costs THREE TIMES the price per unit of energy than gas and it used to be four times the price before Putin invaded Ukraine.
Carry on Nigel, it’s going to be the one issue that puts clear blue water between Reform and every other party in Westminster. The Conservatives need to follow suit if they want any chance of being part of the next government.
December 9, 2024
Surely it is proper that “It then charges to public spending the increase in repayment value of the debt as it occurs, though the Treasury does not make these cash payments”, is it not?
The repayment liability has increased and prudence suggests that ought to be recognized as soon as it arises, notwithstanding that the related cash flows may be delayed until a later period when, as you state, “…the government borrows the enhanced cash cost of repayment to meet the extra bill”.
The alternative of only recognizing the increase in repayment value at the time of the required cash flow would mean the Treasury accounts for earlier years would understate actual costs and associated crystallized liabilities.
December 9, 2024
The sheer size of the national debt – now Ā£2.8trillion – means that the government has to borrow more to pay the interest on our debt
The most recent monthly figures show the government borrowed Ā£17.4bn in October 2024, which was the second highest October figure since monthly records began in 1993.
Borrowing since March has stands at Ā£96.6bn, which is Ā£1.1bn more than for the same period in 2023. In the last full financial year, to March 2024, the government borrowed Ā£125.1bn.
The amount of interest the government pays on national debt fluctuates. It hit Ā£9.1bn in October 2024, equivalent to an annual Ā£108bn – the highest October figure since monthly records began in 1997.
Simple arithmetic shows that the bulk of government borrowing is used to pay the interest. The amount borrowed is then added to the national debt. Clearly, this is unsustainable and will ultimately result in hyperinflation, like Zimbabwe and Venezuela. The Treasury should be buying gold bullion whilst there is still some value in sterling.
December 9, 2024
High, wasteful spending is used to justify high taxation. High taxation enables the state to employ and control more through nationalisation, the Civil Service, quangos, regulators, Offs etc whilst destroying private wealth, and thus freedom, to fund it.
CAGW and its Net Zero āsolutionā was devised to destroy wealth through de-industrialisation and expensive, chaotically intermittent energy, thus enabling population control though the eventual need to ration food, energy and travel.
December 9, 2024
I find it impossible to believe that this and previous governments have or had any wish to reduce public expenditure, the taxpayers’ money, after watching yesterday’s revelation that ‘Controlled Spontaneity’ displays in favour of peace by moslems and communists, pre-planned before the atrocities by the Home Office and sometimes, in the case of film, pre-made, are rolled out after the attacks.
December 9, 2024
I’ve just read the speech Rachel Reeves gave to the EU finance ministers:
https://www.politics.co.uk/news/2024/12/09/rachel-reeves-vows-to-break-down-barriers-to-uk-eu-post-brexit-trade-speech-in-full/
and as far as economics are concerned by far the most important words were these:
“A decades-long productivity puzzle.”
More like a decade and half, in fact, since the Global Financial Crisis, but definitely not just since Brexit as Clegg is pretending today:
https://www.independent.co.uk/news/uk/politics/brexit-uk-eu-nick-clegg-b2659952.html?
“The former deputy prime minister and ex-Liberal Democrat leader said economic growth āliterally went into reverse the moment Brexit happenedā, adding: āClearly the United Kingdom needs to go back.ā”
Rather what is clear to me is that we need a cross-party non-party campaign to expose and defeat these lies.
December 9, 2024
Dear Sir John,
My day job is working with SMEs, many of whom wish to sell into Government.
My understand from one company is that an order placed for data compliance control is held up by the spending review at the Foreign Office that is laying off 1,000 people. Is this true of other departments? Are Starmer and Reeves leaking people out to suggest they are in control. What perspective do you have?
Best regards Graham Howe
December 9, 2024
Denis, you have been commenting here even longer than I have and we have both raised this several times since Brexit. Even when the Brexiteers were in government they allowed these lies to go unchallenged !
I can remember writing to David, now Lord, Frost pleading with him to launch a publicity campaign to counter the overwhelming number of lies and half truths eminating from the vocal Remainer minority.
It never happened and the result has been that millions now believe that Brexit was a mistake when subsequent events have clearly proved it wasn’t, even though the Conservative Party allowed the Civil Service to undermine it at every turn. Clegg knows better, but like Alastair Campbell on Question Time last week, they keep spouting their lies.
December 9, 2024
Oh and not to forget. The valiant Mr Popper. Perhaps the best of all .
December 9, 2024
https://www.wsj.com/opinion/the-real-culprit-in-britains-bond-meltdown-liz-truss-bank-of-england-inside-job-c320b5a7
Looks like the Wall Street Journal thinks the BoE stitched up Liz.