The State Of Our Union

As I suspected I arrived at work today and there is quite a bit of talk going on regarding the election campaign. What does not seem to have penetrated the hard skin of those who only "do" politics when an election looms is the scale of the crisis in the economy, and that is probably fair enough because I don’t think the campaign has really directly addressed these problems or highlighted exactly how severe things are.

So, here is my attempt to set it out in layman’s terms, both why the main parties are being shall we say economical with the truth and to set out where things are, or at least and more accurately how I think things are. My humble aim is to reach beyond my normal readers and offer something that can help people understand some of what is being talked about. I am not generally comfortable on the economics when it comes to the nitty gritty, so I will reference back where I am able, but feel free to put me right in the comments if I have drifted astray.

I believe it was in the 2009 Budget that Labour set out their spending plans for the 2010/11 year and this was not amended in the recent 2010 budget. In it, Labour has basically said that they will spend around about £706bn in this financial year (2010/11). Now, this covers everything from doctors and nurses, through to teachers, maintaining the roads, buying paperclips, servicing our debts and of course, funding MP's expenses.

That number again is:

£ 706,000,000,000

Now, the Conservatives did say quite some time back in 2007 that they will match Labour overall spending totals were they to win the election. This was emulating Labours 1997 pledge to mirror the Tory economic plans, which won favour with the voters and reduced uncertainty in the minds of the voters about changing the regime. The plan in 2007 was to try and take away any accusations from Labour that the Conservatives would “cut services”.  The debate at that time was that Spending was equal to Service, thus a cut in spending would result in a proportional cut in service; this is an argument I would reject, (but you may not.)

That was pretty much how things stood until recently.

However, the Labour government recently announced that they have identified £11bn of annual spending which they could classify, today, as “waste” and they declared that they intend to cut this waste from their 2012-13 spending plans onwards. In return, the Conservatives amended their 2007 pledge stating that they had in fact identified £12bn in “waste” and that if elected they would cut that “12bn waste starting right away; using £6bn of it to tinker with the National Insurance Bands (the “Tax on Jobs”) and cut spending annual spending by £6bn with the rest.

That's:

£ 12,000,000,000 in annual wasteful spending the conservatives will begin to halt in the over the 2010/11 year if elected in a few weeks.

£ 11,000,000,000 that Labour say they know is being wasted or inefficiently used that they want to keep spending until the 2012/13 year, (though we should keep in mind that by 2012 whoever wins the election will have to have at least one spending review before this date so all numbers at that point are likely to change.)

£ 6,000,000,000 that the Conservatives will spend less per year than the Labour Government. (A less than 1% reduction.)

So to repeat, the £6bn currently in discussion in the media and on the TV and what will be mentioned in the leader’s debates is £6bn of money already being spent which has been identified as wasteful with a further £6bn being used to not make employing people into work more expensive.

So, based on the above, the Conservatives are effectively now saying that for 2010/11 their spending projection is the Labour pledge of £706bn, less the £6bn just mentioned, or:

£700,000,000,000

Now, if you like me get a bit bamboozled over these numbers you are not alone and it is because the numbers are truly huge.
 
To pay for Public Sector Spending as set out by each party a Government can basically do two things, it can collects tax and it can borrow money. Borrowed money needs to be repaid at some point along with interest along the way and is obviously a more costly way of keeping the Government running.
 
There is no way I, you or Alistair Darling can be certain of the amount of tax that will be collected in the 2010/11 period, but what we can look at is how much was collected last year and see how much tax is coming in versus how much is needed to go out. Looking at the HMRC numbers for total tax collected in the past year and in recent years there is a very large gap between what can be afforded via tax revenues and via what either a Labour or a Conservative Government is committed to spend. By the chart linked, the Government has collected £397bn in taxation to go towards the amount needed.
 
Let’s keep our numbers simple hope that the tax rises coming will not stifle tax revenue collection and assume that if collection remained flat the money coming in will be:

£ 397,000,000,000

So in our exercise, with a fair assumption on tax income for this year there is a shortfall or to use the Economic term a Budget Deficit in the Labour plan between the amount of money needed to keep the government going and the amount of money coming in via tax of:

£ 309,000,000,000

And it is fair to say that there is a deficit in tax revenues to the Conservative plan of:

£ 303,000,000,000

And that crucially for this next year alone!


This deficit however is not the same as debt.

So when The Chancellor and George Osborne talk about tackling national debt and tackling the deficit these are not the same thing. Sometimes watching debates on TV about the state of the economy I have heard questions asked about our debt and the answer has come about cutting our deficit – this is usually a rouse to lead away from the truth that by all projections our national debt is soaring and will continue to soar no matter who wins the election because the best the parties are offereing is to halve the deficit.

The national debt can be defined quite simply as what the UK owes, and every penny of it needs to be repaid, usually with interest. The current national debt for the UK is about £849bn and as (I hope) you can see from what I have written above, this is rising all the time as the deficit between the money coming into Government and the money going out are vastly different and the deficit needs to be plugged with new loans.

That number again that every taxpayer in this country is now indebted to is:

£ 849,000,000,000

Now, unfortunately this is the "official" number.  However, the official number because it is defined by the Government does not take everthing into account that you and me might include in a more traditional definition.  So, to illustrate this more clearly I need to go back just a few months.  At the end of 2009 the National Debt number stood at £829.7bn.  At that point I wrote about how that £829.7 does not even include Private Finance Initiatives and Pension Obligations that the Government is obliged to pay and at that point a more truer interpretation might put the true debt at £1.35 Trillion, or:

£ 1,350,000,000,000

But, this £1.3 Trillion also does/did not include the potential and worst case outlay based on pledges to buy back mortgage securities. When those are factored in the number rises again to £2 trillion.

Yep, that’s:

£2,000,000,000,000

As the debt goes up in terms of what we can afford to pay so too will the interest rate in which we can borrow future debt, as it becomes more and more risky to lend to us the more we already owe. This is not just true of the UK, but also true of all countries, all households and all businesses. As our deficits continue our total debt rises.

If the deficit is the difference between income and outgoing, and debt is the total that we owe; it is therefore the case that the deficit can be cut, whilst debt continues to rise.

So, you can see that by focusing the debate on the £6bn issue of whether to cut wasteful spending now or later is kind of a false issue which serves to distract from the fact that to actually implement either plan would require loans that are just not realistic in the medium or long term. To meet spending plans as presently set would require loans that would cripple us. If the deficit is growing by about £12bn every month, perhaps £6bn annual reversal is not enough of a plan for now(?)

When the Chancellor and George Osborne talk about halving the deficit in the next Parliament we should remain aware that they are not talking about cutting the debt that is being accrued for which we must continue to pay interest on, the gap will remain and the amount we owe and the amounts we pay each year in interest are set to go up and up and up and up and up and up.

You can look back across recent years and see, there is no way tax revenue would ever cover the levels needed. Simply raising tax rates will not guarantee that more money will come in at the end of the day.

So, in my humble view the current economic debate is something of a sham, because none of the parties are facing up to the real tough questions that should be posed this side of an election. They all know that there is absolutely no way we can afford to take on and service that level of debt. The extent, size, reach and cost of the State has been inflated to a dangerous size, one in which the people of the UK could never have afforded to support over a great period of time. This has been done by our present Labour Government and it is being propped up already by high amounts of borrowing. We will spend more this year on debt repayments than we will for the entire Armed Forces on the United Kingdom and the figure is creeping up.

Labour has had 13 years to re-build the country in the Social Democratic or Socialist model it so desired, but they built their house on foundations of sand and there is a storm approaching. It will need to be rebuilt all over again.

The State framework that Labour built is going to crumble in the next year or so no matter who wins this election. There is going to have to be massive, massive cuts to get by. But let’s be clear, the size and cost of this predicament has been caused by, set up by, with sole responsibility belonging to, this Labour government.

Please frame this in the context of your home or in terms of circumstances that are close to you in terms of what we must do. If your household income fell, you would not increase your level of spending you would cut it to match your income. There may be loans, credit cards and even a mortgage to factor in, but you would manage these based on your ability to make repayments. We probably all know someone who over borrowed or maxed out their credit cards a few years back who is struggling today. It is not really so dissimilar, we all know that in the end to balance ANY budget spending and outgoings need to be balanced against ability to pay, furthermore we all know that by delaying this ends up being more costly in the long run.

By keeping the argument about the circumstances, and merits of the Conservative application of a potential £6bn distracts from the very real arguments that are not being aired, and that people will be afraid to air. The cost, and thus the size of Government needs to be cut by my guess at least by a third and maybe more.

The Institute for Economic Affairs is more optimistic than me, and they think that without any new tax rises that Labour’s spending plans need to be scaled back by at least £167bn annually.

Sorry, but to continue the theme that’s a cut of:

£ 167,000,000,000

Taking £167bn or two times the NHS budget out of the public sector will lead to unrest, it will lead to strikes. Tragic though the consequences are for the people losing those jobs are, the truth is many of them should not have been hired in the first place, their fate is a result of Government mismanagement of our economy.

So when the layoffs do happen and the strikes and civil unrest does come, be it under Labour, the Conservatives or under a Coalition partnership we should be talking today about what lies in store in the road ahead; because ultimately every single person in our land is going to feel the effect of this, every single one of us. And that is what the leaders in this election campaign should be addressing, and as a result that is the debate that we should be having in our schools, workplaces and pubs. By not discussing the size and extent of the inevitable cuts, I believe will fuel even more unrest and protest, because yet again decisions will be made in Whitehall and by the time the election is over and the cuts are being made, the dialogue will be about the tough decisions that need to be made.

After this election the only thing we will be talking about is cuts, cuts and more cuts. That is why we should all be talking about it this side of the election if we want an input on how those cuts may land.

Budget Reactions

Thanks to everyone who joined in today's Live Blogging session which was simultaneously carried by 10 blogs across the Blogosphere.  My reactions whilst listening live was much the same as those also taking part.

What did people think of today's budget?

What did the Tax Payers Alliance think to Darling's last Budget Speech?  Chief Executive Matthew Elliot is quoted on their web page as saying:

"The Chancellor has utterly failed to face up to the horrific scale of Government borrowing and debt. There was a handful of tax holidays and spending cuts, but nothing to deal with the debt addiction which threatens to make Britain the next Greece. The public are crying out for serious and sizeable spending cuts to rebalance the books, but the Government is living in La-La Land. Large spending cuts are essential for taxpayers and for the health of the economy but Gordon Brown only knows how to spend more, not less. We need a real Budget after the election that faces up to the serious realities of our situation."

BTW the TPA has released their manifesto ahead of the General Election which is riddled with common sense ideas which no doubt millions of people would vote for - expect the political parties to brand it as "popularist" as they do with most ideas which people might actually like.


What did Fraser Nelson think?

Personally, I forgive Darling all the partisan stuff in his speech - this is a pre-election Budget after all. There is no act of wanton vandalism, like the 50p tax. Stamp duty on properties over 1m is rising from 4 percent to 5 percent, but does anyone seriously think this would not have happened under the Tories? And there was quite a bit of sense. Entrepreneurs’ tax relief for capital gains tax was doubled to £2 million. There was no extra splurge. All told, Darling did what he could to salvage his own reputation before he passes into history as the Chancellor who picked up the most poisoned of all chalices from his predecessor. 

What did the BBC's Douglas Fraser think?

It's a bad day for scrumpy, cider and the Wurzels, and a good day for kids who make their living making and playing computer games.

Duty on cider is soaring by 10%, on top of an alcohol tax accelerator.

The cynic might look at a map of the cider-producing counties of England, and find few marginal constituencies in which Labour is a contender at the general election.

What did Sky New's Jon Craig think?

After the Budget, I asked the Treasury pointyheads who always give a thoroughly baffling briefing to economically illiterate political correspondents just how many people would be affected by the Belize crackdown.

"Errrr," came the reply. Embarrassed shuffling of feet and staring at their shiny shoes.

"How much will this raise for the Treasury?" someone else asked. No answer to that, either.

Never mind, a shameless piece of tribal, class war, stuff-the-Tories politics had cheered up Labour MPs as they prepare to go back to their constituencies and defend their seats in the weeks ahead.

What did the Adam Smith Institute think?  Dr Eamonn Butler replies:

the Chancellor did not mention that the trade deficit had risen by £7bn or that business investment has fallen 5%. Nor that a government which was borrowing £6bn a year when it came in is now borrowing 27 times that, at £167bn in 2009/10 and another £163bn forecast for next year.

What did The Fink, think?

Basically nothing happened in this Budget because he had already announced policy earlier.

The entire Budget was anchoring.

What did Michael White of the Guardian Think?

Alistair Darling struck a tone of high-minded responsibility but I was not convinced by the way he magicked away those mountainous deficit and national debt figures

What did Gentle Ben think?

This was his Budget, we are told by the Treasury, meaning that while Mr Brown may have been allowed to have his say (do you think he ever stops to say to his Chancellor ‘thanks for not treating me the way I treated Mr Tony’? no), Mr Darling was in charge. And while he has emerged with credit as one of the few straight-talkers in the gang who kept a cool head while others flapped, he is also a Labour politician who has an election to fight. So in addition to the narrative about tough choices (that Tories would not have made), there were specific digs: the rejection of a unilateral bank tax, the offsetting of a stamp duty cut for first time buyers with an increase for those buying million-pound properties, the boast that most additional tax was coming from the top 5pc of earners, the decision to pay for long term care by freezing IHT allowances, the extension of the ‘temporary’ rise in winter fuel payments for a year inviting a campaign question to the Tories – ‘will you extend it?’ and particularly the partisan attack on Lord Ashcroft via a convenient tax information exchange deal with Belize. It was a pointless Budget without a spending review, but it was above all an election Budget from a Labour politician. 

What did I think now I have had some time to mull things over?

In some regards this was a "pointless budget" but in having said that, the fact that our finances are in grave turmoil and the Chancellor had nothing to offer the people who work in this country but dry humour about tax arrangements with Belize highlights exactly how vacuous the people who make up our cabinet are.

We are screwed.  Royally screwed.  What do Labour propose to do?  Tax us more and borrow more.  Great, thanks, because that has been working really well for the last decade or so hasn't it!

Take the pulse of the people you meet tomorrow and ask them about the budget.  When they have finished bumbling along and regurgitating TV news sound-bites ask them how they will personally benefit?  Cue vacant stares.  

This is a budget that does not benefit individuals, and it does not benefit society, nor set a course to correct the ugly vandalism that has defaced our Exchequer.  It is a Budget by the Labour Party, of the Labour Party and for the Labour Party.  Alistair Darling could not offer anybody any reason to vote Labour even with the control that the Chancellor has; he has crystallised how impotent the Government has become.  The sooner the election is called, the better.


Finally, what did Paul Waugh think?  He wants to know how you can deliver a budget with a straight face when it has so many holes in it!

Budget Live Blog - Join In Today After Noon

The window will (should) be up nice and early on Governmentitus because of my recent technical glitches, thus if you are here early please note the fun will begin a little after noon just before the Budget starts.




This is a blogosphere collaboration between A Tangled Web, All Seeing Eye, Barking Spider, Biased-BBC, Corrugated Soundbite, Dick Puddlecote, Governmentitus, GrumpyOldTwat, Man Widdecombe, and Subrosa

You can comment here on Governmentitus or at any of these highly recommended blogs, and everybody will be on the same chat.  This is a break out of the highly popular and successful Question Time Live Blog sessions held on Biased-BBC.

Live Blogging The Budget

On Wednesday afternoon at 12:30pm here on Governmentitus we will be live blogging the last Budget before the General Election in cooperation with a number of other blogs. The Budget will be carried on all major television channels except for BBC1 which will be showing Bargain Hunt (no, really!).

Importantly for us, we will be looking carefully at the different ways that channels report and editorialise the announcements. We'll be able to compare, for the first time here, one event reported several ways in a live environment. Good for bias checkers as well as important for everyone who pays tax in the UK.

The Chancellor’s speech will certainly be a political affair rather than a fiscal exercise, so we can expect plenty of unaffordable goodies deferred until after the Election with a challenge issued to the Conservatives to oppose them.

This chat will be a collaboration between A Tangled Web, All Seeing Eye, Barking Spider, Biased-BBC, Corrugated Soundbite, Dick Puddlecote, Governmentitus, GrumpyOldTwat(thanks for the pic!), Man Widdecombe, and Subrosa - all excellent and highly recommended blogs. If you haven't been to some of them before then please take this chance to try them out.

From Biased-BBC, All Seeing Eye and David Mosque will be in the moderators chair so it'll feel just like our regular Question Time evenings. To catch the live blogging, come back here on Wednesday, March 24th just after noon.

None Of The Above Please

So we are to have a budget in two weeks time, or at least we are to have Alistair Darling on TV in two weeks time telling us how he is going to spent yet more borrowed cash on swing voters in order to buy Labour another election.

Here is some of what Gordon Brown said today:

"We are weathering the storm; now is no time to turn back.

"We will hold to our course. And we will complete this mission. We have got through this storm together but there are still substantial risks ahead.

"There will be bumps in the road. And I believe the only way to overcome them is by displaying the same strength and resolve as we did during the crisis."

He then (with a straight face) declared that he had the “character” to lead Britain to economic recovery and attacked the Tories for planning to cut spending and bring us back into recession.

I am glad Gordon Brown mentioned his character because it comes up time and time again and two things are immediately and resoundingly evident to everybody not wearing a red rosette (and too many that do).

1. Gordon Brown is an indecisive bottler, incapable of making tough decisions. In fact, I would suspect that he has problems taking the not so grand decisions also. So he has surrounded himself with bullies and blowhards who by being vocal and aggressive to others have fooled the dim-witted PM into believing that they are decision makers who can compensate for and disguise his own failings.

2. Gordon Brown is prepared to put The Labour Party, The EU and himself before the general welfare of the UK. He is a selfish man in the midst of constructing what he likes to call a new system of world governance and never once have people been consulted. History will not view Gordon Brown kindly, nor should it.

Clearly his attribution asymmetry is way-off if the bullying allegations are to be believed, which I think the overwhelming majority of people do. In success, people will naturally attribute success to their own abilities and talents, but in failure we look to attribute this to external factors and bad luck. Other peoples fortune is down to their good luck and others failure are down to their mistakes. So when the debt bubble that Gordon Brown helped to create came crashing down it was all the fault of the American Sub-prime market. When the expenses scandal broke it was the fault of the Conservatives 1983 legislation and a retired pensioner. When he inherited a golden economy borne out of the backbreaking labour of the Conservatives self employment revolution he stood at the dispatch box and proclaimed to have ended “boom and bust”.

If the election is decided on Gordon Browns Character there will be a funeral for the Labour Party on 7th May.

It is telling that despite everybody in the country being very aware of Gordon Brown and Labours failures that the Conservatives are not 30 points clear and that we are not talking about the Liberal Democrats assuming the mantle as the new second party of the UK. I have written before of my dislike and distrust for the Conservatives new direction.

Janet Daley has been having one of those tediously boring back and forth’s with Danny Finkelstein that generally is not interesting to anybody but those involved, however this one may have (finally) reached an interesting conclusion vis-à-vis the modern Conservative Party. The Tory modernisers it would seem have been hired from the New Labour School of misdirection. They seized upon some polling which suggested that Conservative Policy on Immigration during the 2005 election was deemed popular or welcomed in the polls, but only when those being questioned did not know that it was a conservative policy. When the Conservative brand or Tory name used, people disassociated with it. This was of course to do with the BBC witch (or Warlock?) hunt on Michael Howard and the BBCs rather successful attempts to show all Conservatives as bigots.

When telepromterless Cameron landed in CCHQ sans tie and pin-stripped suit the “modernisers” took the Immigration Polling and used it as the basis for the need to “detoxify” the brand. Thus ensued photo shoots with Huskies, policy meetings with Bob Geldof, and explains why Cameron was in East Africa whilst his Witney Constituency was under water. The Party was hijacked by the policy wonks on the basis of a poll that showed that if the BBC’s editorial policy is biased and vindictive enough the Toris wil flinch; clearly the BBC has too much control over the TV News arena in the UK. So instead of picking a fight with their mates at the BBC Cameron the new team were given their own dodgy dossier of research (also done by the BBC) that showed that people don’t know or care about things like “back benchers” they don’t even know what terms like that would mean. They care about gay weddings and Eastenders and thus the Conservatives need to modernise and use pollsters and rock stars in their policy formulation, and stop relying on voters and party members to tell them what they want. Janet edges us to the conclusion that therefore as a result we now have a Conservative Party fit for the post democratic era. Not as she says because the whole conservative brand was tarnished, but simply because of the public view on Immegration after the BBC assault.

The problems of course begin with and end with So What? This would have been useful information two years ago or even a year ago, but with Cameron tight lipped on policy back then there would have been hardly any concern from the grass-roots. It is the emergence of Team Dave’s direction and the recent u-turns and revisions that have planted the red-toryistic concerns in voters’ minds. So it doesn’t really matter so much now how the Conservative Party got where it is today there is an election in six weeks. The decision needs to be whether to vote for it or not. The perplexing question is having taken the Conservative Party away from conservative voters, will a Tory Win be used as confirmation of the new Tory Brand and strategy thus abandoning Conservative voters for at least a generation or would a defeat or hung parliament force the party to where the Conservative Grass-roots are?

There are some in the Conservative Party that are just now realising why Tony Blair won in 1997 and are determined to use their new found knowledge in an election in 2010. It is only because there is an empty suit in 10 Downing Street that they are not being spanked completely in the polls. Tony Blair would have turned the polls already – he would have done it a year ago and we would be into a fourth Labour term.

In the absence any Conservatism from the Conservative Party and in despair at Labour the voters are seemingly looking for a do over. We are not getting the options we want or need so we are engineering a hung Parliament as a vote of no confidence in both Labour and the Conservatives and we are hoping one or both will come out the other side and start listening to what people are asking for. We need and want a severe reduction in the size of the state and of our overall tax burden, we want our finance put in order, we want a tax break to make the cost of living in this poorly governed country easier, we want fuel bills to go down not up, we want to smoke in the pub and we want government to concentrate on governing, rather than what I put in my wheelie bin.

For the benefit of David Cameron’s aides I have translated this message into some graphs that may be confused with polling data and therefore can be slipped into the radar as a hint to the current Tory Leadership about where their current problems lie.