Friday, 21 March 2014


Following pre-Budget tradition, Chancellor of the Exchequer George Osborne holds up his red Ministerial Box outside 11 Downing Street.

It's Friday. It's financial. It's Friday Financial with JULIAN SAYER.

The expression “Robbing Peter to Pay Paul” refers to times before the Reformation when Church taxes had to be paid to St. Paul's church in London and to St. Peter's church in Rome. Originally it referred to neglecting the Peter tax in order to have money to pay the Paul tax. In other words taking from one to pay another.

With that firmly in mind in another rambling look at the world’s economic problems, I fear that the Government's shortcomings are being pushed on to the people who least can afford it.

In essence, nearly every budget is always the same. The chancellor giving with one hand and taking with the other. In these times of austerity it's never more evident. George Osborne has to raise money in order to pay the UK’s ever increasing debt.

I could write a piece on the details of the budget, but the news and papers are full of reviews far better than I could write. If you really want the details you can find them here:

UK National Debt excluding bank bailouts, March 21, 2014. Image courtesy of UK Debt Bombshell
Four years after he became Chancellor, the national debt has exploded, the budget deficit remains at dangerously high levels, and an increasing share of tax revenues must be devoted to repaying creditors.

Britain's debt is still increasing at nearly £16m every hour of every day! I'll say that again for the hard of thinking, and I'll say it LOUDLY. Our debt is increasing by £16m EVERY HOUR.

The figures below are just the Government debt, it doesn't include personal or business debts. Which takes UK total debt to staggering levels.

Debt is the biggest problem to the stability of the world in the short term. It needs to be controlled for any country to have a balanced healthy economy in the future. Debt is growing faster in nearly every developed country than at any time in history. Only the cost of financing the Second World War is comparable to what is currently happening. It took the UK sixty years to pay off those previous War Loans. Make no mistake, with debt comes trouble, be it austerity, war or revolution, once a country gets into an unmanageable debt, troubled times are not far away.

A country's debt has direct consequences to how much it can afford to spend on services to help society, and how much they have to tax people and businesses in order to raise the money to pay the interest. The bigger the debt, the more interest you have to pay.

As a rough rule of thumb, when a country’s debt to GDP hits 90% it starts to become a problem, when that figure goes over 130% of GDP, the economists say, they are unlikely to ever repay that debt. Once you get into the realms of servicing a debt of over 90% a country has difficult decisions to make. They have to cut services, benefits, pensions and even in extreme measures start selling off state assets in order to try and control their debt. This is austerity, and get used to it, because it's here to stay.

The list below gives the latest estimates for a few selected countries debt to GDP in 2014, and their debts back in 2007 before the catastrophic financial crisis happened:

Country.                      2014.                               2007.

UK.                                96%.                               43%
Spain.                          100%.                               36%
USA.                            114%.                               67%
Ireland.                        118%.                               25%
Italy.                             133%.                             103%
Greece.                        188%.                             107%
Japan.                          250%.                             183%

As you can see, the debts have increased alarmingly and are becoming unmanageable for a lot of countries. Under rules agreed in the Maastricht Treaty for the EU, all European countries must report every year on their finances to ‘avoid excessive budgetary deficits'. Under the rules countries should run a debt to GDP ratio of 60 per cent. You can see how far out of kilter most countries are! These countries are now trapped in a vicious downwards spiral.

These countries have suffered, the people have suffered, and sadly there is no end in sight. The only way out of this type of debt is to grow the economy, and/or inflate the debt away. But with all the developed regions of the world struggling this is unlikely.

We in the UK have been relatively lucky, in the fact that our service-based economy has survived quite well, with the consumer continuing to prop up our economy with their spending.

I would love to know how much the PPI claims, and the subsequent boost to the spending have masked our problems. Being the cynic I am, I do wonder if George Osborne wants to try something similar by releasing the pension money of many hard pressed people near retirement in this latest budget.

Other countries haven't been so lucky, namely Greece, Italy and Spain. They have been decimated by depression-like conditions. These three countries have little chance of ever paying their debts off, and with little chance of any meaningful economic growth, they will only continue to suffer. People talk about Greece as starting to recover, but the reality is it simply doesn't have much further to fall. For a real grasp of their plight this is the best article I have recently read:

Italy, Spain and many others are very much in danger of following Greece down this road. As I said the only real chance these indebted countries have, is to return to growth, I will ask anybody to come up with which region of the world will spark this recovery and increase demand? China was supposed to be doing this over the last five years, but you are just beginning to witness the reality of their economy.

The USA to me is the only one that could drag the world out of our current economic malaise, but the likelihood of that is quickly diminishing as their debts are growing quickly, and the levels of unemployment and unfunded liabilities are a huge drag on the economic growth prospects (more on this next week.)

The best long term scenario is that the world economy will expand for decades and we will partly grow our way out of this debt crunch (like we temporarily did in the 1990s). But, I do not see stability for that length of time as even a remote possibility in this world full of crises. I think it is only a matter of time before another downturn in the economy or an unforeseen world event brings about the collapse of this house of cards.

The real issues in the UK economy over the coming years are debts, liabilities in the form of pension promises and social care costs, demographics and the rising spectre of unemployment through technological advances.

The government also faces enormous long-term liabilities which currently do not appear in the national accounts. These include pensions and healthcare commitments that are spiralling due to a rapidly ageing population.

Governments have become obsessed about PR and being elected, their interference is actually holding back economic growth. To add to the demographic challenges facing the UK, a series of policy decisions, implemented for short-term political gain, have done lasting damage to the future prospects of the economy.

One of Osborne’s first moves was to raise harmful taxes such as VAT in a misguided attempt to reduce the budget deficit and avoid additional spending cuts. It has backfired spectacularly by suffocating economic activity, dampening the recovery and as a result actually increasing government borrowing. And despite the depth of the recent slump, the burden of regulation on business has been increased. Tax and labour-market legislation has become even more costly for firms, while energy prices have spiralled due to government intervention.

This latest budget failed to tackle any of these problems. The tax system has become a complicated mishmash of legislation: another ill-conceived crackdown on tax avoidance was combined with a series of bizarre tax breaks for favoured sectors in classic crony capitalism. Yet again successive Governments fail to tackle the real problems and continue to rob Peter to pay Paul!

After last week’s article of fixing markets

I see somebody has actually been convicted of fraud! How long was he sentenced for?

Did the Bank of England know about all this fixing and fraud? It wreaks of a cover up to me.

See you next week, for another look at how your vote means nothing and will change nothing.


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  1. The biggest issue for the interest on debt at the moment are the interest rates. Once those start heading back to historic rates then look at more QE to pay for it, which will ultimately increase inflation and diminish savings.

  2. This debt will never decrease if it's gaining 16 mill every hour!