Where are we on dealing with the deficit?


If we take the wider definition of our public borrowings which includes the state owned banks, Network Rail and the rest, it is down just a little since 2010. It currently stands at £2800 billion. (This does not include the future costs of the state pension as we have often discussed before!) It rose rapidly from £743 billion in 2007-8 to £2870 bn in 2009-10, Labour’s last year in office.

Under the Coalition the level of state bank indebtedness has been curbed substantially. This has been almost entirely offset by continuing increases in state borrowings to pay for public spending. On the narrower definition of state borrowing excluding banks the total has risen from £956bn in March 2010 to £1432 bn in August 2014, an increase of £476 bn. This puts the idea of public sector austerity into perspective. The Coalition has continued borrowing at a similar rate to Labour’s increases, though the Coalition is gradually bringing down the rate of increase in the borrowing.

This August  spending is up  by 3.3% on the previous year. Current spending is up by a little over 1%, and capital spending is up by more than fifth. Revenues are up by 3.2%, thanks to a strong performance from VAT, Stamp duties and Corporation tax. Income tax is not very buoyant owing to the substantial increase in Income Tax thresholds. Austerity originally designed for the public sector has become a term to describe the squeeze on living standards which started with a large fall towards the end of Labour’s period in office and has continued at a slower pace since 2010. The original plan to eliminate the deficit this Parliament has been delayed by less progress in increasing tax receipts than planned. The spending reductions were always going to be more towards the end of the adjustment process, and many of these have now been  delayed until the next Parliament.

The Chancellor is seeking £25 bn of additional spending reductions compared to current plans for the next Parliament. He has stated that “12bn will come from welfare changes, and £13 bn from general departmental spending including overhead costs. The Shadow Chancellor has said he merely wants to eliminate the current deficit, but would carry on borrowing for all capital spending, which means he needs fewer cuts to present plans. Total borrowing in the next Parliament could be reduced substantially by selling all the remaining shares in banks. This would be a good idea for a variety of reasons and would be the single biggest way of reducing the loan mountain. I invite your thoughts on the pace of deficit reduction and  the desirability or other wise of spending cuts.


  1. ColinD.
    October 1, 2014

    The Coalition rightly complained about the enormous debts that Brown left us, but Osborne has been quietly running up breathtaking debts of his own. By banging on about ‘reducing the deficit’ he has tried the hide the awful truth of what’s really been going on.
    Why should our children be lumbered with the bill for our profligacy?
    This Government need to come clean to the people about how much we owe the rest of the world and how much interest we pay on these debts. It needs to tell us every month (1) how much we owe (2) the change these figures represent from the previous month (3) the previous month’s balance of trade figures (4) the interest we paid in the last month.
    Osborne needs to present a plan – for which he will be held accountable – to show how he proposes to pay off these vast debts, year by year.
    Once this is done, we the voters will be able to see through the deficit reduction ‘smokescreen’ and make better judgements as to whether vanity projects like HS2 are worth the risk.

    1. petermartin2001
      October 1, 2014

      “Why should our children be lumbered with the bill for our profligacy?’

      Well unless we can invent time travel, and therefore consume goods and services produced by them, they won’t be! They will consume the products of their economies just as we have consumed the products of our economies during our lifetimes.

      1. Denis Cooper
        October 1, 2014

        Except that we have consumed more than the product of our economy and have consumed part of the products of other peoples’ economies, and one way or another taken as a body our children will have to repay the debts to those other peoples. Some of our own children will also be net recipients of repayments, but most will be net payers. This is part of the reason why our politicians are so keen to get other peoples’ children and their children helping our children with the repayments.

    2. Hope
      October 1, 2014

      Before Lifelogic mentions it, Cameron pledging tax cuts today as he did in 2007 to cut IHT. 7 years on and no delivery on IHT. 80 percent spending cuts and 20 tax rises was another claim. The reality being somewhat different and weasel words used to say this was different from what was meant. Why does he think we will fall for his PR stunt today? Bonfire of quangos could cut public spending, still waiting. Still does not pay to work when £26 k is on offer for doing nothing. He still could not answer if he would lead the UK out of the EU if he failed to renegotiate with the EU. A lot of savings and tax cuts could be made if the UK contribution to the EU was stopped. Cameron still not as good as Blaire on spin but distrusted exactly the same.

      1. Narrow Shoulders
        October 1, 2014

        There is 36k on offer for taking a local minimum wage job under Universal Credit. An extra ten grand for waiting tables, stacking shelves or manning a till with no responsibility. Unfortunately it is not on offer to those already on the jobs merry go round, we can’t downgrade for more money but the Poles and other Eastern Europeans are welcomed wih their families to drink at the tax payer provided trough.

      2. Lifelogic
        October 1, 2014

        Indeed IHT has not even been raised with inflation by ratter Osborne and no promise on it even for after the election.

        299+ tax rises and now he want us to believe he will deliver tax cuts this time. How dim does he think the electorate are?

  2. Mick Anderson
    October 1, 2014

    All of the things you list demonstrate how poorly a “Conservative” chancellor has performed. I don’t buy the idea that all the woes are the fault of the Coalition with the Lib Dems. Firstly, they are the diminishing junior partner, and secondly Mr Osborne is too proud of his “achievements”.

    With the much-publicised collapse in Lib Dem support, Mr Cameron has still not had the strength of character to be blunt with them; to tell them to put up or shut up. Mr Clegg might have seats in Parliament now, but must know that if his petulance had forced an early election they would have been virtually wiped off the map. The days of “I agree with Nick” are an absurd memory.

    The tinkering around the edges that have been touted as cuts have been far too modest and way too late. Mr Osborne has only managed to slow the rate of increase in borrowing, and Mr Cameron keeps promising to spend more. The £25bn that Mr Osborne wants to save is just a rounding error on a debt of trillions.

    This country needs a Conservative government, which is not something we are being offered.

    1. Leslie Singleton
      October 1, 2014

      I should be happier if it were made clearer all the time whether we are talking annual figures or one off reductions in the debt. It took me time to decide that the “25 billion” is (I think) a hoped for reduction in annual expenditure starting in two years’ time. I may be wrong. I would venture that most people haven’t a clue, which is part of the problem. It’s not that hard to say “annually” when that is what is meant. “saving £25 billion” is meaningless.

      1. Leslie Singleton
        October 1, 2014

        Postscript–Having learnt to my surprise that we have a Minister for Civil Society (Civic Society I saw and heard on the BBC) I wondered a) What this meant (eg that portion of Society which is civil??) and b) Whether there is a Department attaching to it. On any basis it should be shut down forthwith. Presumably this was a LibDem idea, it is bonkers enough. Trouble is it’s not funny.

        Reply Handles charities and the “third sector” etc

        1. Leslie Singleton
          October 1, 2014

          Thanks but, still, a) Why do Charities need a Minister (and presumably a Department) and b) Sorry to be so ignorant, but what on earth is the “third sector” (entirely no idea but is it related to the University of the Third Age??)?

          1. Lifelogic
            October 2, 2014

            Basically there is the (hugely bloated) state sector, the private sector (there to be milked by the first) and the “third sector” basically (charities with tax perks, churches, (usually lefty) pressure groups, purveyors of green crap & quack science, “the big society” and similar).

            Rather a generalisation but essentially true.

          2. APL
            October 2, 2014

            Leslie Singleton: “Why do Charities need a Minister (and presumably a Department)”

            We don’t, I believe it was an innovation introduced by Blair and Brown, to further their attempts to Nationalise those aspects of private life, charitable giving and so on, that had previously escaped the Socialists attention.

            This current rabble, hasn’t abolished the role. But given that the Tory party and the Labour party these days have the same goals, one shouldn’t be surprised.

            Leslie Singleton: “Sorry to be so ignorant, but what on earth is the “third sector””

            The Charitable sector, that used to survive on the freely given funds and charitable work – has now been co-opted by the government, and is granted and subsidised – to the extent that the ‘CEO’ of the NSPCC, for example is on a six figure salary.


            Consider that when you next donate.

        2. Lifelogic
          October 1, 2014

          Cameron’s “Big Society” Minister – what happened to that one?

    2. Denis Cooper
      October 1, 2014

      It’s difficult to wipe the LibDems off the map because they have their strongholds where they are well dug in. Even with their present low level of support across the country, only 8%, they may still win 18 seats:


      On the prediction given there Labour would win an overall majority of 42 and so they would not need the support of LibDem MPs to form a government, but if the Tories closed up on Labour and the latter were just short of an overall majority then that kind of LibDem rump could become crucial.

      Meanwhile, on that simplified overall prediction UKIP’s 15% support would not be enough to win them any seats at all. Of course there could be places where their support was sufficiently concentrated to win, but the other parties will do whatever they can, separately and together, to try to prevent that.

      1. Lifeligic
        October 1, 2014

        Libdems will surely go with Labour anyway, if there is no overall control. Their member would not allow anything else. Only a 7% chance of a Tory majority and that might only be by 1 Ken Clark.

        1. Leslie Singleton
          October 1, 2014

          Their member sounds a bit salacious

    3. mickc
      October 1, 2014

      Yes, I entirely agree with this.

      Osborne has been a poor Chancellor. He believed that this was a “normal” recession, which would be cured by the passage of time.

      In fact we have a Depression. The only jobs being created are low paid (or low income “self-employment”) with the result that the anticipated tax “take” is way below target.

      The OBR expected tax to yield an extra 6.5% this year. In fact receipts have fallen by 0.8%!

      And its no good blaming the OBR. It is just a bureaucracy. MPs are supposed to be in touch with their voters, the people who DO know whats happening.

      Further, capital spending should not have been cut. It is this which is the investment we need.

      So, Osborne has borrowed for current spending-the road to ruin, as bank managers (remember them, rather than the salesmen we now have?) used to explain to the profligate.

      1. Lifelogic
        October 1, 2014

        Worse still Osborne has made tax far more complex, and introduce an absurd random GAAR element. Lots more parasitic jobs for lawyers and tax experts. Lots more overheads and distractions for the productive.

  3. Lifelogic
    October 1, 2014

    In other words the government has largely done all the wrong things for 4+ years. They have forced the banks to suck money back from sound businesses and restrict (or overcharge) on new loans. Meanwhile the government itself continues to waste money, hand over fist, in the feather bedded, state sector also making excessive payments on benefits to encourage people not to work.

    They have increased taxes 299+ times, but take little more in tax receipts. They have made tax yet more complex increasing parasitic jobs in both sectors. They count endless things such as HS2, subsidies for wind, electric cars and the likes as capital investments when they are clearly just pissing money down the drain.

    The UK government has rarely ever raised much more than about 40% of GDP in tax they just need to learn to spend no more than that. In fact for maximum good for the maximum number of people it should be nearer 20-25%.

    Start by reducing salaries/pensions in the state sector by 1/3 so they get the same remuneration as the private sector. Then fire the 50% that do little of any use, cancel the green crap, hs2, the pointless wars and all the rest of the nonsense. Undo the private pension muggings of Brown and Osborne. Abolish IHT and start to make the moral case for lowers taxes, less government and people actually doing useful work.

    Income tax is also down because wages in the private sector are often down too. Thus due to undercutting by uncontrolled & non selective EU and other immigration (in many areas of work).

    I am the only one who finds Teresa May’s desperately illiberal proposals, appalling and rather frightening?

    1. zorro
      October 1, 2014

      No, the proposals are truly dreadful, woolly, and a danger to freedom of speech.


  4. Roy Grainger
    October 1, 2014

    With both Conservatives and Labour in a spending arms race on the NHS it seems pointless to be discussing spending cuts. One assumes that eventually the traditional tool of high inflation will be used to reduce government debt. Given the extreme unlikelihood of an outright Conservative majority at the next election the announcements on in-work benefit cuts are not only purely hypothetical but also actively counter-productive in winning votes.

  5. Margaret Brandreth-J
    October 1, 2014

    Selling all the remaining shares in which banks? How have they performed? With the intention of partly investing in other banks or simply to make he books straight and start spending again?

    1. Timaction
      October 1, 2014

      How about cutting the £12 billion Foreign aid budget to humanitarian crises only of £1 billion? Stop pretending to be all things to all nations. We know there is significant waste and a lot of this money funds foreign despots, advisers or Indian Space Projects!
      Then we could cut the EU net budget of £13 billions, almost doubled under the Tory led Coalition Government, despite the EU budget cut that never was! We could actually leave the political project and just conduct trade and friendship and stop funding foreign infrastructure and farmers! Conclude our own trade deals and recover our fishing grounds and get rid of the CAP. Radical.
      We could stop all immigration and take a breath. Instantly we wouldn’t need 100,000’s of houses on the greenbelt, more congestion, stop increases in waiting lists on the International Health Service and get timely Doctors appointments. Our children and grandchildren could get into local schools and we could save another £5 billion in minimum wage tax credits whilst encouraging UK plc to train our own youngsters instead of taxpayers subsidising their staff and the unemployment benefits to 4 million of our own! Billions in savings on unnecessary EU regulations, especially for the 92% who do not conduct ANY trade or business within the EU dictatorship. SME’s could compete on a level playing field with the Footsie 100 who are happy to stifle local competition under the banner of regulation!
      The legacy parties are just not up on the game and still conduct their business and behaviour from the 20th Century. Analogue players in a digital age.

      1. Narrow Shoulders
        October 1, 2014

        Why is this so difficult for those charged with running the country to see?

        Lower tax take and GDP but lower running costs, better standards of living and fewer problems requiring foreign policy to safeguard our own streets.

        1. Timaction
          October 1, 2014

          Oh they can see. They just want a United States of Europe, a political project that the legacy parties conceived and have implemented over the last 40 years by incremental stealthy Treaty change (Google FCO 30/1048 of 1971). Fortunately we are at the point where they can’t hide their true intentions any longer by spin and lies from the English, Scottish, Welsh and Northern Irish people! There is no such thing as British as they have given away citizenship to anyone who has chipped up on theses shores at their encouragement.

          1. Leslie Singleton
            October 1, 2014

            It is 100% the fault of British Governments who were forever lobbying for countries small and far away and very different from us to say the least to be allowed to join what became the EU. Perfectly demented to allow them free entry and doubly so given that it is so difficult for our own friends and family to get in. I never at the time even for a moment believed that these other countries, which most of us could not find on a map, would help us get what we wanted.

      2. ian wragg
        October 1, 2014

        We are run by idiots who are in it for their own ends. What is good for the country is no good for them.
        What is logical to you and I is alien to the ruling classes that’s why none of them have had proper jobs.

    2. Margaret Brandreth-J
      October 1, 2014

      Lloyds have sold off more shares to TSB ( and sacked eight staff in the name of the LIBOR scandal) Santander have been considering an IPO with further ideas of selling off shares privately?

  6. Martin
    October 1, 2014

    Let me put a different reason for income tax receipts being poor- outsourcing of back office jobs to Commonwealth countries.

    Isn’t it about time the UK left this job stealing organisation and started taxing companies that outsource jobs?

  7. Alan
    October 1, 2014

    I’m not sure that people want to reduce the deficit. It means either increased taxation or decreased public services, or increased productivity. The first two are undesirable and the third seems to be unattainable.

    If we don’t reduce the deficit we will eventually have to devalue the pound again, but people don’t seem to care much about that, not even those who lend the Treasury money and get repaid in devalued pounds. In the end we might not be able to borrow, because people may refuse to lend us money that will be repaid in devalued currency, but that time could be a long way off. People are quite prepared to lend money to the Treasury at negative real interest rates at the moment.

    I think we should get rid of the deficit because I think it is the only responsible way to run an economy in the long term (and also I am retired and have savings in pounds that will be devalued), but I appreciate that this is just a prejudice. So long as we can get away with running a deficit most people would think we should probably go on doing it.

    1. Nick
      October 1, 2014

      If we don’t reduce the deficit we will eventually have to devalue the pound again,


      No. You have to default on the state debts. FX doesn’t come into debts the UK government owes to UK citizens.

      The average state debt per tax payer in the UK is 300,000 pounds. Can you pay your share?

      Can the average person pay their share?

      The debt goes up faster than inflation.

      The answer is that the average person cannot pay it.

      The market doesn’t give a hoot about most of the debts because they aren’t the creditors.

      1. Alan
        October 1, 2014

        Isn’t it the foreigners that matter? They are the one that might not lend to us if they realise they are not going to get their money back. British lenders don’t seem to care if they get paid back in pounds that buy less than they loaned because they only need pounds.

        Actually the interest rate is less than the inflation rate, so the debt goes down as time passes, unless we borrow more (which we do because it’s cheap).

        The bond market does care about getting repaid, but they work to a short timescale and think they are clever enough to get out if they see problems coming.

        Of course I can pay my share; we all do actually pay our share (apart from the part that is paid by the Bank of England printing money).

  8. Ian wragg
    October 1, 2014

    Another clever vote losing ruse. Take 3 billion from the public and increase foreign aid. You really do have a death wish. Last night the BBC reported dropping about £1.5 million in bombs by the RAF to destroy a pickup truck and machine gun post. Very cost effective. Not.
    Now we are out bidding labour on the NHS waste carousel. Only 30 weeks John and you can improve your golf.

    1. zorro
      October 1, 2014

      Think of the profits for the arms dealers…. Oh, they never lose……


  9. Ian wragg
    October 1, 2014

    Just listened to good old Auntie. NHS is in crisis due to us living longer and expensive drugs. No mention of half million foreigners coming in annually. Many of them with existing conditions requiring treatment. Do you see us as that stupid.

  10. Lifelogic
    October 1, 2014

    Cameron having made the “in three letters N H S” his priority at the last election and then duly threw the election.

    Now (and having done virtually nothing to improve the NHS for the last 4+ years) is going to repeat this silly approach yet again. We shall see. I am sure I will find his speech hugely depressing. He still has on open goal in 2015, if only someone would fix his duff compass.

    We can only have a decent health service if we have a strong economy (and start charging for, reorganising, and indeed breaking up, the dreadful, thousands of deaths causing NHS. It is hugely incompetent & incompetently rationed by absurd delays NHS too. Customers are treated as a nuisance to be put off at every turn. You can easily die in the waiting room at casualty while waiting to be seen for 3+ hours.

    He is still listening to the same experts who got it wrong last time and repeating the mistake. We need a vision for growth, a more efficient (and far better focused & directed) state sector, and far lower & simpler taxes.

    Will the now “pounds and ounces” Cameron finally wake up?

    1. Richard1
      October 1, 2014

      He is playing for the votes of the c. 5-10% of the electorate who waver between Conservative and Labour/LibDem in marginal constituencies. Focus groups etc must presumably show such people love to hear about ever more spending on the NHS. He is assuming that anyone who thinks of themselves as right of centre, and who in particular wants an EU referendum, will not be dumb enough to vote UKIP in a general election, and so let in a far left Eurofederalist like Miliband.

      1. Lifelogic
        October 1, 2014

        Well he has not got much more than a 13% chance of an overall majority, so this strategy is clear not working with the public at all.

        Having just watched Cameron’s speech it was indeed very professional, very slick and very well delivered but:

        He claimed the Coalition was paying down the debt – a very clear, pathetic and a complete lie to the electorate.

        This is the man who has ratted on Cast Iron, the IHT promise and has actually increased the IHT tax in real terms every year and has actually made 299+ tax increases and even introduced yet more pension mugging measures. Why would anyone believe him this time they would have to be very stupid?

        He has done nothing much on the dreadful NHS for 4 years why would he next time? It needs to start charging.

        He proposes more idiotic socialist interference in the free market with zero hour contracts, 20% discount houses and the minimum wage. The man is a John Major/Heathite to his very heart and soul. Just a more polished one.

        Hardly any comment at all on the elephant in the room the EU. A fake promise on his 20% discount houses being not for foreigners that is illegal under EU law.

        A fake distraction battle of the ECHR mainly centred around the totally trivial issue of prisoners’ votes.

        These policies are what he should have done in May 2010, but he decided throw the election and rat on them, on IHT, rat on his EU promise and make 299+ tax increases instead. Why would anyone trust him this time?
        Cameron is a polished performer, but he failed last time and will surely rat again. Indeed at this rate he will not need to as he looks set to throw this election too. This despite all the help from the hapless Miliband.

        A UKIP deal is probably the only way to victory. He cannot just ignore the EU issue it just will not wash from this Cast Rubber man however polished his speeches.

        1. Richard1
          October 1, 2014

          Yes but he also has to operate in the world as he finds it. Proper reform of the NHS especially in the coalition would never have flown. The min wage probably destroys jobs at the margin, eg for students, but its not high and can you imagine the political capital Labour would have made out of abolishing it? I’ve never understood the objections to no referendum on the Lisbon treaty – it was always clear that such a referendum could only happen if the treaty wasn’t yet signed. But Brown had signed it, so it was a done deal. I think there is every reason to believe there will be an EU referendum if there is a majority Conservative govt.

          I agree local deals at least with UKIP will be needed. Will UKIP really think its worth fielding candidate in the general election eg in Wokingham? But I can equally understand the Conservative party will not make any formal central deal.

          Did you also notice the BBC frenzy at Cameron’s failure to mention climate change or any of the policies we can classify under ‘green crap’? Its moving in the right direction…..

          1. Lifelogic
            October 2, 2014

            Moving in the right direction but very slowly indeed.

            You say – it was always clear that such a referendum could only happen if the treaty wasn’t yet signed.

            No, clearly when the treaty was signed a referendum becomes even more important certainly not less. Anyway Cameron promised one in cast iron terms. He then ratted on it with the complete lie that “a treaty is not a treaty once signed”. He thus threw the last sitting duck election!

    2. Lifelogic
      October 1, 2014

      Nicky Morgan the education secretary sounded very PC on the BBC/Womans’ hour message in her speech. Waffling on about “Glass Ceilings” and other such drivel.

      I am all in favour of more women doing physics/science/maths/engineering and indeed many are excellent, but if she thinks they are not doing so due to some glass ceiling or social conditioning she rather missing the point. It is freedom of choice and on average more girls & women just choose not to study physics etc. than boys & men.

      One might have expected better of an Oxford jurisprudence graduate, perhaps she should speak to some sensible scientist/physicists. Does she perhaps think some Cuckoo’s lay their eggs in other birds nests because of their life experiences or glass ceilings erected by male cuckoos? Or do spiders make their webs due to social pressures within the spider society?

      Science is about reality, not PC drivel and how you might like it to be, that is the perhaps first thing people wanting to do science (of either gender) should realise.

  11. petermartin2001
    October 1, 2014

    Several points:

    1) The future costs of the State Pension have to be borne when those payments are made. As the £ is an IOU of Government/the State it is simply not possible for Governments to save up their own IOUs, just like we cannot save our own IOUs, now to pay for future expenditure.

    2) £2.8 trillion sounds too high. The National debt is reportedly much less than that at about £1.3 trillion so I suspect there is some double counting there. In any case, everyone should understand that all currency issuing countries have large National debts. If they haven’t then they haven’t issued anything. Germany has a National Debt of ­€2.4 trillion and rising. Add them all up and the world owes $59 trillion !

    Who to? The Martians?

    3) If the UK paid off its National debt the £ would cease to exist as a currency. We’d have no alternative but to go back to a barter economy or join the Euro!

    Figures from:

    Reply The £2.8tn figure is the official figure for state debt. This enlarged figure was calculated following pressure form myself and others to state the full public debt, including the state owned banks. The figure you want is the smaller state debt figure based on the loans taken out to finance excess state spending over tax revenue which I have also provided.

    1. Gary
      October 1, 2014

      I keep hearing people say that future govt obligations will be dealt with in the future by future income, whilst waving their hands. But , they fail to mention that when you discount the future with the appropriate deflator you can find out that net position NOW. This factors in the future incoming and outgoing streams. Nobody would ever buy a business without doing this calculation. When you do this for all the major economies(except perhaps China and Russia, although who knows what their real numbers are ?) , they are completly and irrecoverably insolvent.

      So, given that the tax potential under any historically realistic growth rate , ie. incomings, is almost at a ceiling, they have one choice left : cut outgoings. They have two choices to do that , 1. inflate the value of the outgoings away and keep the same nominal total, or 2. just make a real cut of the total. The latter would probably bring people out onto the street.

      Inflation is the choice that they have made. That is what overt (or covert) QE is all about. Unfortunately, the size of the obligations relative to the incomings that must be monetised may consume all the equity that we have and when that happens(or sometime before) we get hyperinflation. A repudiation of the currency.
      And then it is all over.

      If you are to evaluate

    2. Richard1
      October 1, 2014

      1) State pension obligations are debt like as they are a future obligation however they are paid for out of current taxation (and new borrowing). So including them makes no more sense than accumulating other future spending obligations, eg state salaries
      2) State debts are owed predominantly to their own citizens and to investing institutions. There is no mystery about this. Which countries have access to international borrowing capacity though is very much determined by competent management of economies, including control of spending
      3) There is no chance of the whole of the UK debt being paid off, but why should that mean the end of £? There was a time in the late 1980s when it was thought (v wrongly of course) that the gilt market would cease to exist because of negative net issuance, but no-one said the £ would have to go.

      1. petermartin2001
        October 1, 2014

        You’re right. There is no chance of the ND ever being paid off. Nor should we try to pay it off.

        It can only be reduced by governments levying more in taxes than they spend. Theoretically this could only happen for a finite time. When there were no more ££ left in existence, anywhere, the taxation and spending would have to cease. In other words the £ would be extinct.

        Reply You can have a currency in circulation without a deficit and without a public bond debt.

        1. Gary
          October 1, 2014

          Not when reserve currency is created by the Central Bank buying govt bonds with freshly printed money out of thin air. No govt bonds , no reserve currency, no reserve currency no commercial loans. This is how all central banks work by default.

          Of course, they have now gone off piste and QE could involve buying anything with newly created money.

          The real question should be , why not just let the govt create money and issue it into existence ? I think it is a terrible idea, but not as terrible as the present setup. Lincoln issued greenbacks that way and some say he lost his life for that decision to people with vested interests to issue the money for profit.

        2. petermartin2001
          October 1, 2014

          Reply to reply.

          Technically that it true.

          The monetary base is not included in the National Debt. That would have made some sense when the £ was backed by gold, but now that it isn’t and a £10 note is just a liability of government/the state in exactly the same way as £10 bond is a liability then it makes much less sense.

          The creation of money has to be considered to be the creation of debt.

      2. Leslie Singleton
        October 1, 2014

        As I remember (not that I could precisely explain how) was it not the case that under Nigel Lawson although he got a great deal wrong we were close to paying off the National Debt?

        1. petermartin2001
          October 2, 2014

          No that was nowhere near true. However Nigel Lawson ran a credit boom in the late 80’s. House prices soared if you remember. That delivered a small budget surplus in 1989 which would have reduced the ND slightly.

          However a surplus means that government is removing money from the economy. That’s OK if there a surplus of exports over imports which can bring in extra money to both cover those tax payments and allow those who wish to save to do so. However, that wasn’t the case in the UK at that time, there was a large import bill to pay too.

          Consequently Nigel Lawson’s boom turned to bust in the early 90’s after money drained from the home economy.

    3. Nick
      October 1, 2014

      2.8 trillion is too low.


      Page 4.

      5.01 trillion as of 2010 on pensions alone.

      Reply Thank you for giving us the link to a government publication clearly stating the pensions liability. Critics here constantly say this government has failed to publish it, but here it is as you say.
      I made clear in my blog that I was leaving out the pensions liabilities, but as you show you can add in another £5tn if you wish to the figures I did set out.

      1. petermartin2001
        October 1, 2014

        Well you can add in another £5 trillion for the payment of future pensions and, as Richard 1 has just suggested, another how many trillion you care to include for all the other future liabilities of State. If you integrate, in the mathematical sense, from now to some indeterminate time in the future the figure you will end up with will be infinity.

        So we need to be realistic about this. Yes, there is a problem in that we are an ageing population and will be reliant on the abilities of the present younger generation to provide the real goods and services we will all net consume as we age. Government can always provide the finances. That’s never a problem for a fiat currency issuing government.

        The problem lies in what those finances will buy. We need to realise that we are going to be just as dependent on those young people as ever any previous generation were. Having them unemployed , in the numbers they now are, isn’t the best of preparations for that future role which they are going to have to fulfill.

      2. acorn
        October 1, 2014

        If you treat the UK as a public limited company, it had total liabilities of £2.893 trillion for 2012/13 (£1.63 trillion net). This number turns up in the UK WGA Accounts thanks to Mr G Brown, who asked for it to be calculated about a decade back.

        The £5.01 trillion number is purely theoretical and was a “demonstration exercise”. It has no impact on government debt or deficit calculations, as the document stated.

        You keep forgetting that the UK Treasury, and its BoE, can never go broke in its own currency, which it is the monopoly issuer of. It will be able to pay any Pound Stirling pension liability that it manages, from now until the end of time.

    4. Denis Cooper
      October 1, 2014

      The world as a whole doesn’t owe anybody that $59 trillion, the governments of the world directly or indirectly owe it to various private individuals around the world. And I would chance my arm and just hazard a guess that maybe 90% of it is owed to about 10% of the world’s population, with the other 90% expected to repay it with interest.

      1. petermartin2001
        October 1, 2014


        Yes the figure of US$ 59 trillion represents the sum total of the world’s financial debt which, in an accounting sense, must equal the sum total of the world’s financial assets. That’s not to say that the world’s real assets sum to zero too. Obviously they do not.

        But you are absolutely right. The distribution of those financial assets is skewed. Real assets too, and much more than you’ve just suggested.

        But that’s a socialist argument and probably not a welcome one on Dr Redwood’s blog!

  12. Richard1
    October 1, 2014

    Mr Reckless seems to have got a little confused on this issue, complaining that so much debt has been added. He is of course right, but it was always obvious that bringing down Labour’s enormous deficit would take time and each year there is any deficit at all, debt goes up. Of course spending needs to come right down, there is waste in so many areas – green crap, overseas aid, no doubt in every govt dept etc. The tax take by the state is also too high for the UK to compete sustainably with high growth countries. We need govt to head towards c. 30% state spending to GDP and balanced budgets. It works in countries like Switzerland and Australia (with even lower %ages for Singapore and other high growth economies) so why not here?

    I suppose Mr Cameron’s new spending commitment on the NHS is felt to be electorally necessary and has been carefully tested with focus groups. But is is depressing that politicians think the only way to win an election is to promise ever more spending on the NHS. We should welcome the tiny reforms – such as doctors having to acknowledge people don’t only get ill in office hours on weekdays – but if we really want better healthcare for our money we will at some point have to contemplate radical reform. Next Parliament perhaps?

  13. Nick
    October 1, 2014

    There is no need to include the banks. The banks have assets. The difference between their assets and liabilities is positive. They have capital. If you know any different then you must report them to the BoE for trading whilst insolvent.

    The pensions debt is another thing. What matters is whether or not the state is in negative equity. Since you owe 9,000 bn pensions include [banks excluded] with no assets that are realisable, you are bankrupt.

    Don’t tell us either that the tax receipts are assets. In other words you are the slave master owning the population. If you want to go down the route of saying future tax revenues are an asset you also need to account for future spending to keep the slaves happy. Since the average spend is greater than the average income from the serfs, you own a collection of liabilities.

    The original plan to eliminate the deficit this Parliament has been delayed by less progress in increasing tax receipts than planned. The spending reductions were always going to be more towards the end of the adjustment process, and many of these have now been delayed until the next Parliament.

    Exactly. It is screw the public and the public sector fat cats like you carry on spending, yet another 10% pay rise plus pensions etc.

    Spending up. Taxes up. Services down. Someone is ripping the public off.

    Pensions debts based on the last figures are increasing at 636 bn a year. 2005-2010. I’ve no doubt they have carried on going up in spite of your 20% cuts to the payouts. The only thing you can do. Since the rate of increase exceeds current taxation, you’re not going to pay. However, you will insist people pay for something they will never receive. Since those debts are still hidden, I suggest you look at section 2 of the 2006 Fraud act and read it carefully.

    9 trillion in debt means 300,000 pounds of debt per tax payer. Median tax payer is on 26.5K a year. Can you pay the debts? No.

    Can you print to pay? Oh dear. They are inflation linked debts bar 800 bn of fixed rate debts. You can screw the lenders there, but as fast as you print the inflation makes the debts bigger. You cannot print your way out of inflation linked debt. No more than you can print tins of beans or anything else in the inflation basket, and pensioners cannot eat banknotes.

    Then the real obscenity. The opportunity cost. What could that median wage earner have received if they had invested their NI?

    836K pounds generating 28K leaving the capital intact. They would be no state pensions debts.

    The state offers no fund, 5.7K in income, and a 240K share of the state debts.

    You and other MPs have stolen over a million pounds from a 26.5k a year worker resulting in wide spread pensioner poverty.

    If you want the spreadsheet with the full details, you can always ask.

    Reply MPs have not stolen money. They have voted for a pay as you go pension scheme ever since it was set up. It has always relied on a future generation paying our pensions in return for their children paying theirs. So far all parties and Parliaments have honoured the pledges.

    1. JoeSoap
      October 1, 2014

      “MPs have not stolen money”
      No but a case could be made for negligence. I have statements showing what my future entitlement to State pension will be. Supposing migration of young workers here suddenly reverses, and you have an aging population with insufficient workers to fund it? Then you won’t be able to fund a State Pension. At some stage this will happen, and people will realise they have been sold a pup. The only alternative is to keep increasing immigration to fund the system, to the point where our Country is saturated beyond breaking point.
      At some stage, the clock has to stop and the books have to be squared. Liblabcon don’t get the message, of course.

  14. Denis Cooper
    October 1, 2014

    So where are we now on the budget deficit, JR? You don’t actually say.

    To put it in simple and readily comprehensible terms, in 2009 the Labour government was having to borrow about a quarter of all the money it was spending.

    The last time I looked, that was down to the coalition government having to borrow about a sixth of all the money it was spending, £107 billion out of £674 billion.

    But that was for 2013/14, and for 2014/15 spending is apparently up to £714 billion:


    while the OBR predicted borrowing of £96 billion, however it will probably be higher.

    So is the current position that the government is having to borrow about one seventh of all the money it is spending?

    Down from one pound in every four, appalling, to one pound in every seven, still bad.

    Is there any idea when it will be possible to start paying down the accumulated debt?

    1. sjb
      October 1, 2014

      As the pie chart (see your link) shows the two largest slices are welfare (pensions & health care) that overwhelmingly benefit the elderly. That cohort grows year-on-year[1] so it is difficult to see at the moment how borrowing for those areas of expenditure will fall because what political party is going to take on 13m+ of the electorate?

      [1] http://www.helpage.org/global-agewatch/population-ageing-data/country-ageing-data/?country=United%2BKingdom

    2. outsider
      October 1, 2014

      “Is there any idea when it will be possible to start paying down the accumulated debt?” In reality Denis the answer is no. The way Whitehall works, however, we shall no doubt find that the debt is set to peak just before the end of the forecast period, if not in money terms then as a percentage of GDP.
      The UK economy has gradually fallen into such a deep hole that no potential government has the faintest idea what to do, except to keep digging.
      There was a wonderful contrast between Mr Hague’s praise of the Chancellor for turning the UK economy round and the Chancellor’s picture of how bad things are, which was obviously designed solely to make Labour look even more useless.
      The Chancellor was right but he did not care to mention the abject failure to rebalance the economy (the trade deficit is costing us about 350,000 decent jobs) or the failure on immigration, which has led to housing costs rising by about 170 per cent in 15 years, even at unsustainably low mortgage rates.
      The reality is that more taxes on private spending would be needed as well as cuts in public spending to make an impact on the Budget and trade deficits but no-one dare mention this, other than for symbolic taxes on “the rich”.

  15. Bert Young
    October 1, 2014

    I am hesitant in responding to your blog because , once again , you have decided you do not like my responses . It is your blog so you decide , however , it was always my view that you welcomed responses no matter even if they disagreed with you . Yesterday I mentioned that Chairmen do not act in isolation , they consult with other members of the board and then decide what to say in the best interests of their shareholders and employees . Today I have to say that the record of this government in its effort to control and reduce the deficit is a shocking one . There are so many issues concerning public expenditure when a determined Chancellor could act , put his foot down and simply say ” no ” . He has not acted in this way and the result is another announcement of increase . The only individual who has said ” no ” is Ian Duncan Smith , he , at least has recognised the stupidity of lack of control and done something about it . Osborne’s statements are determined enough but – and it is a big “but” , he does not follow up with sufficient courage and determination afterwards . If the leadership of this government were strong , experienced and trustworthy , the condition of our economy would not be where it is today ; furthermore , if the experience of others who are MPs stood up and made their objections strong enough , the government would be obliged to do something . The result to me is a stalemate and a let down to all aspiring and hard-working people .

  16. M.A.N.
    October 1, 2014

    Nothing wrong with debt as long as it can be serviced. However, going forward, the long term implications are not healthy. It’s the uncertainty that is a problem, and one off smash and grab mansion taxes etc, from a party (not even in power! Let’s concern ourselves with the elected party!) does not enable the long and painful business of asserting ourselves in the world. Burning our money blog used to calculate total uk liabilities, even 3 years ago it was iirc £11 trillion odd, but it’s academic. The real problem is, who would start a business now? Be easier to buy a btl surely. And then you have a group of unreformed Marxists in opposition waiting for thier chance…..

  17. Brian Tomkinson
    October 1, 2014

    Back in 2010/11 you convinced me that your party was unworthy of support as, despite the pre-election promises to eliminate the deficit by 80 % spending cuts 20 % tax increases, your honest analysis of the budgets and government plans showed that current spending would continue to increase and the deficit would be reduced, if at all, only by increased taxation.
    Your colleagues have boasted, and still do, about the great progress Osborne has made and yet he is still borrowing £2 billion a week, after more than 4 years in office.
    The horrendous debt figures, which are still rising inexorably, stand as testament to your party’s abject failure. You now confirm that: ” The spending reductions were always going to be more towards the end of the adjustment process, and many of these have now been delayed until the next Parliament.” Do you really expect us to believe that any of this will take place? Having squandered the opportunity to deal with this since 2010, to suggest that your party will do it in the next five years is fanciful.
    It is often said that the definition of insanity is repeating the same thing and expecting a different result. Many of us have realised that voting for your party would indeed be madness. The same, incidentally, goes for the other two main Westminster parties – you have all failed us, betrayed us and lost our trust.

  18. Sir Graphus
    October 1, 2014

    The DTI just bought my sailing club an £8k dinghy. At the same time we’re running a £100bn deficit. It was almost an embarrassment to receive it, especially as Vince Cable turned up in person to deliver it, and announce he’d just given £3m to Ben Ainslee’s America’s Cup challenge.

    There must be thousands of savings like this to be made, so that substantial cuts to the services we need can be avoided.

    1. JoeSoap
      October 1, 2014

      It just bears out what most folk on here say, and contradicts government assertions of austerity

  19. oldtimer
    October 1, 2014

    The pace of reduction is too slow. If more sensible policies had been pursued more progress would have been made. Examples include excessive spending on foreign aid, foolish energy policies and foolish tax policies and some unwise welfare decisions (such as the excessive 5% increase handed out earlier in theis Parliament). The direction of travel on welfare spending and education is right.

    The deficit needs to be eliminated more quickly through a combination of further spending cuts, elimination of unproductive investments such as HS2, introduction of more competition within the NHS to achieve better value for money and by reducing tax rates. Tax rates that discourage work and effort (income tax) and the realisation and reinvestment of assets (CGT) are a drag on the economy. The less the government tries to micromanage the economy the better the economy will perform.

  20. John Chaytor
    October 1, 2014

    I am very disappointed that the elderly are getting let off yet again.

    They seem to have their triple lock guarantee in perpetuity.

    Why aren’t their benefits limited to say 1% for the next two years? How much would that save?

    Cowardice by all major parties I dare say.

    1. Margaret Brandreth-J
      October 1, 2014

      Considering that any monies are usually handed down to future generations, or pay for care , I think this comment is short sighted.

  21. Denis Cooper
    October 1, 2014

    Off-topic, the Electoral Calculus website has updated its four charts of average opinion poll ratings back to May 2010:


    The changes during September are small and as usual one should not attempt to use them by themselves to draw firm conclusions about what is happening. However this past month’s “straws in the wind” are blowing in broadly the same direction as those of previous months over the last two years or so, and there is a fairly clear pattern.

    The changes since the last monthly update are in round numbers:

    Labour + 2%
    Tory – 1%
    UKIP – 1%
    LibDem – 1%

    These changes do not add up to zero, but then the total of the four poll ratings shown is only about 90% and there are no lines for other parties or indeed for non-voters.

    Although support for UKIP has dropped slightly it is clear that the broad upwards trend is still unbroken. The trend may be weakening, but it has not yet been reversed.

    In its purest form the official Tory hypothesis is that every one of the 15% of voters who are now supporting UKIP is a lost Tory sheep who can be tempted/cajoled/bullied back into the fold. However if one was to accept this and assume that the 1% lost by UKIP all returned home to the Tories then with total Tory support not rising but dropping by 1%, and Labour support rising by 2%, the obvious conclusion would be that a 2% chunk of those previously supporting the Tories have switched to Labour.

    An alternative extreme analysis being that all of the 1% support lost by UKIP went back to Labour, where they had in fact come from, and another 1% switched to Labour from the Tories; that would also be consistent with the movements of all three.

    Over the past couple of years it has become obvious to me that if their purpose is to win the next general election then the Tories have been directing too much of their fire at the wrong parties. Kicking the LibDems while they are down is no good for the Tories if their residual supporters switch to Labour, as most of them have been doing, and likewise the Tories can expect little net benefit in their contest with Labour from bashing UKIP, even if they succeeded in bashing it to death.

    1. JoeSoap
      October 1, 2014

      No, describing what UKIP members might do with a vacuum cleaner isn’t the most obvious way to attract them back, but hey…
      Why don’t Tories just accept that they are a left-leaning party. Thatcher and her cohort were a pleasant aberration which attracted members such as our own host, but those days are gone for ever and times move on. There is a new party with fresh ideas, which doesn’t need to throw insults at others.

    2. Leslie Singleton
      October 1, 2014

      Personally I should be very happy to see the LibDems annihilated

      1. Denis Cooper
        October 2, 2014

        So would I, and from UKIP’s point of view it must be highly desirable, as desirable as the annihilation of the Pro Euro Conservative Party. But it wouldn’t be so desirable for the Tories unless they could attract more of the erstwhile LibDem supporters than Labour. The opposite has proved to be the case so far even though Cameron had made great efforts to cosy up to them, and thereby losing some of his existing support.

  22. Narrow Shoulders
    October 1, 2014

    Government spending has increased because the population that spending services has disproportionately increased in order to give business subsidised imported labour (and a free European market ) rather than training its own indigenous staff.

    The imported population needs costly adjustments (tax credits, housing, education, health, security and armed intervention from religious cranks etc).

    Shut the gates and watch the situation improve. Yes GDP and tax take will reduce but expenditure will reduce by much more.

  23. Know-Dice
    October 1, 2014

    Part of the problem with the general level of excessive public spending is the partitioning of funds.

    Ask your local council why they have just spent £800,000 on a cycle lane or (£2.4million in the case of Reading Council) and they will say it comes out of a “different pot” – er no… it’s all public money regardless of where it comes from.

    May be a two year moratorium on this type of spending and/or returning excess funds back to the general pot, rather than finding “vanity” projects to spend t on could help the health of the public purse…

  24. Robert Taggart
    October 1, 2014

    Where we are is not where we should be – in the black.
    Whether we talking about the Budget Deficit OR the National Debt – Blighty will have to pay its way / cut its cloth / count the pennies… just wish there was political will to face this truth all round.
    In the meantime – you could do worse than give us scroungers a little more dosh to ‘spread around’ – just think about all that VAT and DUTY which the nations coffers are missing out on !

  25. acorn
    October 1, 2014

    “So for anybody to ‘get the deficit down’ from this point requires either a significant adjustment to the external balance, or one of the domestic sectors going deeper into debt. Right at the moment we effectively have a domestic ‘balanced budget’.” (Neil Wilson)

    JR. There is a learning opportunity today. Look at Fig 15 in ONS “Quarterly National Accounts, Q2 2014”. Also, Neil Wilson’s chart at “3spoken UK Sectoral Balances – Q2 2014”; you will see what Neil is talking about.

    The sectors (financial assets) sum to zero, the internal flows between sectors borrowing and lending have more or less balanced out at the current level of activity. Hence, the governments budget “deficit”, in this Quarter, has been “saved” by the “rest of the world”. That’s us buying all them 60 inch Plasmas and all the rest of the stuff we import.

    Imports are good, we get to drive round in Audi R8s (real assets) and Audi gets a bag full of UK Pounds Sterling; which they have to find something to do with. It would be nice if they bought a Jaguar F-type R coupe, to balance out the trade account a bit. They might sell those Pounds and buy Euros and take them back to Germany to pay the lads who made the R8. Trouble is, that will raise the value of the Euro and push down the Pound. That will make the next R8 more expensive in the UK etc etc etc. (Read: 3spoken “It’s the Exporters Stupid” on how to buy the currency that is going to buy your exports.)

    Imagine if we had a new political party that understood any of this; UKIP doesn’t either by the way! The government’s “deficit” is always being saved by one or more of the other sectors. Say for instance, if all the non-government sectors wanted to net save financial assets, then the government would have to run a “deficit” to supply those “savings”.

    Cash in your pension funds, there is loads of “national debt” in them; spend it like Osbo’ wants you to. Then he can start getting it back via VAT and numerous other taxes; duties etc etc etc. 😉

    Reply The obvious fact that one sector’s deficit is another sector’s surplus does not mean that large deficits are stable or always can be easily financed. If one sector borrows too much and has trouble repaying it can cause a crisis.

    1. petermartin2001
      October 1, 2014

      Reply to reply:

      ” If one sector borrows too much and has trouble repaying it can cause a crisis.”

      Yes exactly right. If the Public sector ‘borrows’ too much, or in other words, creates and spends too much money then the crisis we’ll inevitably get will be one of higher than acceptable levels of inflation.
      On the other hand, if the private domestic sector borrows too much we’ll have boom times when that borrowing is occurring. But, when the borrowing slows down and the debts accumulate, the boom will turn to bust and we’ll have a crisis of unemployment and bankruptcies in the economy.

  26. Lifelogic
    October 1, 2014

    You invite our thoughts on the pace of deficit reduction and the desirability or otherwise of spending cuts:

    One could cut the state sector by 50% without anyone even noticing a reduction in services if they just did only the things that matters, paid staff the same as the private sector and became even slightly efficient. The faster the better and the fewer inducements for the able bodied not the work the better for all.

    At the same time you have of course to compensate by releasing the private sector from excessive taxation, over regulation, relax planning, get cheap non green religion energy and sort out dysfunctional and uncompetitive banking.

    The economy would boom, just take the parasitic sector brakes off.

    1. Narrow Shoulders
      October 1, 2014

      Do not forget that a large slice of the private sector provides services and consultancy to the private sector and creams off a large slice of our taxes in the process. Private sector can be ineffecient with taxpayers’ funds too.

      1. Narrow Shoulders
        October 1, 2014

        D’oh private sector providing services to the public sector is how that should read.

  27. Vanessa
    October 1, 2014

    There is a consensus that when taxes are low governments receive more money ! Look at Russia, they reduced tax to 13% and the coffers overflowed.

    Also I do not agree with taking out people from paying tax. (No tax without representation). People should pay a little to feel they are contributing to the infrastructure. Why should they be so special as to be let off paying for everything they use like the rest of us. There could be a 10% tax level on the lowest paid but they should pay.

    1. Know-Dice
      October 1, 2014

      I’m Ok with low paid people paying no tax, at least it means they have a job.

      Would like to see the tax threshold tied to the minimum wage.

      40% threshold should go up – after all somebody earning £41,900 is already paying more tax in real money terms.

      What’s that Mr Cameron… tax threshold up to £12,500, £50,000 40% tax threshold – where did that idea come from?

      Looks like a UKIP/Conservative coalition in May!!!

      Mind you, some would say that he never keeps his promises – says his hands are tied by the coalition partners…

      1. JoeSoap
        October 1, 2014

        Yes I see the Tories practically copied word for word UKIP s proposals on increasing the threshold to minimum wage levels and increasing the 40% threshold. UKIP, however, might find the money to pay for it having curbed spending where the Tories won’t.

      2. Vanessa
        October 2, 2014

        The years of Cameron are littered with UNkept promises. And why should government dictate how much companies pay their employees? Many very small companies with not survive if their salary percentage is controlled elsewhere. I thought we had a free market in this country. It looks as if we are becoming the second tier of the USSR where the State controls everything.

  28. Stephen Berry
    October 1, 2014

    In 1815 after the Napoleonic wars, British state debt was around 250 per cent of GDP. The following 100 years saw low public spending, but the currency maintaining its value because the UK was on the gold standard. It was not until 1914 that state debt had come down to 25 per cent of GDP.

    In 1945 after the latest world war, British state debt had again reached 250 per cent of GDP. The following 45 years saw high public spending with massive depreciation of the currency. By 1992, UK state debt had already shrunk to 25 per cent of GDP.

    It sticks in my throat to have to say this, but in our inflationary age the state, with it licence to print, can easily handle present debt levels. Sad but true.

    October 1, 2014

    I was not reading your blogs some while ago regarding “future costs of the state pension” which is just as well for I have never understood who or what stole the state pension funds Daily-Mirror-style in the first place.
    A generation ago everyone paid a stamp one way or another for their state pension and it was understood and calculated that if you missed a few payments your resultant pension amount would be less. Suddenly somewhere a couple of decades ago politicians of every conceit and peculiarity spoke without reference to past analyses that, ones state pension was being paid for by “the younger generation” and the problem was that too few people were being born. “What must be done?” they uttered which is a preface to politicians certain to provide the definitive answer. Their answer, craftily, some would say, IMMIGRANTS, young immigrants who by the way also have FORTUNATELY different values to ourselves in that they go “beyond” the current fad of having merely 1.75 children per couple and usefully have as many as 5 or 6 children. Problem Solved! they left the unimaginative to conclude. It could of course, within the same ditch of argument, be asked how are the immigrants and children of immigrants’ pensions to be paid?
    But of course the real question remains. What has happened to the pension funds?
    Were they used by right hon Mr Brown for example along with the stash he made by selling our gold assets to continue his vision of pumping more and more money into his Keynesian slot machine in the hope of ( according to the law of averages ) an eventual jackpot win?
    There does not appear to be any real attempt by any political party to fundamentally pay our debt and eliminate our deficit. When they perhaps use metal detectors in and around the Treasury they may find the Lost Pension Pot. This would certainly help…it is a huge amount.

    Reply The National Insurance monies were always spent each year. The scheme was always pay as you go.

    1. JoeSoap
      October 1, 2014

      Reply to reply
      Another reason for the mistrust, another reason for a radical overhaul of our tax and benefits systems – there are now so many, as people wake up to see what has happened.
      (The government pension scheme is ed) actually “pay now, I’ll spend it for you and later contributors will cover your pension” schemes.

      1. Leslie Singleton
        October 1, 2014

        Dear Joe–I cannot understand what it is you are hoping for from the repetition of this point which is not and never has been any kind of secret. THE point is that future pension outflow does not have to be sourced from current receipts. What is the big difference from a company’s say future heating bill which is of course not due and payable yet?

    2. Handbags
      October 1, 2014

      National Insurance isn’t a savings scheme. Your contributions aren’t saved up until you retire – the money is spent immediately on existing pensioners.

      There’s no money in the pot – when you retire your pension entitlement will be paid for by the people of future generations.

      That’s the way it was set up just after the war – the first pensioners effectively got a pension without paying any contributions.

    3. Mondeo Man
      October 1, 2014

      Reply to reply – Go as you pay, more like.

  30. Kenneth R Moore
    October 1, 2014

    This is the battleground between the ‘modern compassionate Conservatives’ ie spending money we don’t have as a mere token to demonstrate moral superiority and Dr Redwood’s Conservatism based on sound money and long term interests. They are most uncomfortable bedfellows.

    The Leadership are in a complete state of denial – just as Mrs May selectively quotes religious texts to portray all faiths as purely about peace Mr Osborne refuses to acknowledge he is treading a path to disaster. These self serving people if confronted with uncomfortable truths simply seek to conjure up a version of reality they find more comforting. Britain is paying down it’s debts, mending the roof blah blah blah..
    Mr Osborne’s priority is to secure power – the best interests of the country come somewhere much further down the list.
    In the end it doesn’t matter what George Osborne , me or Dr Redwood himself think – the markets will deliver their verdict and it wont be pleasant.

  31. Eddie Hill
    October 1, 2014

    As are other bloggers above, I am always sceptical as to whether we’re being told the truth about our country’s finances, largely because all sides dispute the other sides’ figures, especially when “pricing” policies at election time. I don’t understand why the Chancellor shouldn’t publish a set of the UK’s accounts (balance sheet, P&L and cash flow) every year, since he apparently knows what the numbers are.

    I read in Philip Johnston’s column in this morning’s Daily Telegraph that George Osborne should be open about the fact that he wants people to vote Conservative notwithstanding that his prudent economic policies might mean them being “as much as £500 worse off if the Tories get back in power.”


    [In typical fashion, this £500 isn’t explained – is it once off? Every year for 5 years? In total, no matter how long the Tories are in power? In short, it is unhelpful.]

    However, I wouldn’t mind being “£500 worse off” if I thought it would repay the deficit, but it won’t, it will just be poured down the bottomless pit of the vanity projects this and former governments seem fixated upon, such as Overseas Aid, or funding for sport and the arts, or bringing democracy to Afghanistan.

    Perhaps we should ask the question: “How badly off do we need to be before our governments stop giving money to other countries (some of which have space programmes) or spending it on things we don’t need?”

  32. Alan Wheatley
    October 1, 2014

    I would have thought the best strategy for tackling the defect would be to go at it hard and fast, hot on the heels of Labour’s time in office. That way the blame could fairly and squarely (and clearly for all to see) be blamed of Labour. OK, the LibDems would have influenced policy, but surely they too would like to have blamed Labour for short-term pain and hoped to be able to demonstrate long-term gain in time for the 2015 election.

    Is this not what Geoffrey Howe did when inheriting an earlier Labour economy cock-up, with a successful outcome?

    My view as to why this did not happen is that the Conservative decision makers did not understand the issues nor the remedies, despite being able to see what was wrong at first hand. It may be that after four and a bit years of practice they now have a better idea of what to do, but that is hardly a track record on which to grant them a further opportunity.

  33. ian
    October 1, 2014

    IMF calling for 57 trillion over 15 year for infrastructure spending all over the world, They call it last chance saloon, all this money will be mostly borrowed, GDP = waste. Our debts, government, private and companies debt is nearly 17 trillion pounds, what cannot be paid back will not be paid back, smoke and mirrors, not on my watch, wait till I past over, leave it to someone else to sort out. The day is coming and everybody in power know it, they are all acting like children. They should get on with the job and crash the economy, that means right off all debts and start again. It be much quicker than death by 1000 cuts, it would all be over in a year, the only thing is that it ones with big houses and high power jobs that owe all the money, they really broke. That why they want death by a 1000 cuts, so you do not find out because you look up to them and think that they are intelligent, You see some people and companies who you think are rich owe so much money that the bank have to keep on lending to them or the bank would be in trouble.

  34. John
    October 1, 2014

    The EU costs our country £20 billion per year and foreign aid costs £11 billion. If you returned that money to these shores you could almost halve the deficit and make no cuts to services for this country.

  35. Kenneth R Moore
    October 1, 2014

    Has Mr Redwood a view on whether we can afford Mr Cameron’s commitments he hastily made to the Scots when he panicked over the referendum?. It’s no good politicians saying we must not break our promise but it won’t be their pension pot or savings that have to pay for them.

  36. ian
    October 1, 2014

    Do the people writing on this site know how broke this country is because they right in billions when it trillions, a trillion is a 1000 billion, so a few billion hear or there makes no difference. Do you know how long it takes to earn a trillion, look at wet& mad he has not made a dent in the debt yet and been going 5 years with IMF he could 50 year and still not make a dent. The IMF wants the world to borrow 3.9 trillion a year to keep the world going, are cut of that would be about 150 billion to 200 billion a year, so how are you going to cut. Draghi wants the ECB to agree to buying outright junk bonds from Greece and Cyprus do you any cuts there. The german people will have opposition to that and if this join the euro in 2020 you can share that debt with them as well. Wars a loan with spending will keep it up at 100 billion a year and then john did mention PFI debt for hospitals and school and such like which is about 300 billion and growing every year.

  37. petermartin2001
    October 1, 2014

    There far too much doom and gloom about the deficit.

    The way the economy works is really not that difficult to understand. Government creates money when it spends. When it taxes it destroys it. A surplus means it destroys more than it creates which is logically impossible except over a short time-scale.

    All money created by government must eventually come back to be destroyed after it is trapped in the government’s very efficient tax net. Where else can it go? It can be temporarily reprieved from its eventual fate if it is saved, either by ‘prudent’ individuals or companies, or in the central banks of the big exporting countries.

    Any politician wanting to “balance the books” needs to stop us saving or buying imports. To do that they need to make us all very poor. If that’s their plan they should tell us before the election , not afterwards.

    1. Kenneth R Moore
      October 1, 2014

      The deficit is large because the real productive economy is shrinking and the GDP figures are being manipulated by borrowed and printed money.We should be concerned about this.
      Confidence in the economy and our ability to pay our way is everything when we are borrowing billions of pounds a month.
      Yours is the logic of pulling yourself up by your own bootstraps.

      Left unchecked, our current account deficit would become unserviceable ..either by creditors dumping sterling gilts thereby forcing up interest rates and borrowing costs which would be a disaster for the Uk with our level of debt. Who in their right mind would lend to a country that despite being up to it’s neck in debt still cannot live within it’s means.

      In a world of rising oil and food costs and possibly a shrinking pound as capital leaves the country , there are other more prosperous and prudent countries that will be able to outbid us for the supplies of oil and food we need.

      1. petermartin2001
        October 2, 2014

        The budget deficit is what it is because both savers in the UK, companies and individuals, and savers overseas , the big exporters, wish to hang on to ££ issued by the British government. Just quite why they do might be a mystery to many but that is what we see happen!

        For example, if savers in the UK went out and converted their savings into bottles of whisky, and the money that Germany and China hold due to their trade imbalance was spent on Rolls Royce jet engines, or whatever, in Britain, then the government’s tax take would soar.

        The deficit would simply disappear.

        1. Kenneth R Moore
          October 2, 2014

          The relaxed attitude to our current debt and the deficit by the Modern Monetary theorists can be summed up as ‘it will be different this time’. It never is and their approach always has led to disaster. We are now in unchartered territory.

          We are in a position were there is no incentive for any saving with negative real interest rates in place to bail out those with too much debt.
          With little incentive to save there no capital to invest for the future. So all we can do is build up more debt and cannibalise the asset base to pay the bills until the second bigger financial crash happens.
          This time governments wont be able to bail out the banks and it will be much worse.

  38. Lindsay McDougall
    October 2, 2014

    We have two more years of hard pounding, with deficit reduction of £20 billion in each, before party bags can be handed out. I don’t think that Foreign Aid and geriatric medicine can avoid a trim. Generic drugs only for over 75s? The wealthier baby boomers will be asked to contribute.

  39. a-tracy
    October 3, 2014

    The Tories are like a slimming club, overweight people really need to be encouraged to go and stick with the program and if you have a fabulous, supportive mentor the majority stick it out, learn a new self discipline and begin to understand the benefit of the program they’re on. However the Tories have hopeless mentors who wield the discipline, Diet message without the compliments for small gains, encouragement to continue, highlighting the benefits we’re getting as we go along or the future benefits to be had by our families. The rots at the top, all this austerity, misery message and no this is what’s going well.

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