BBC BLOGS - Stephanomics
« Previous | Main | Next »

Bad news is good news

Stephanie Flanders | 15:59 UK time, Tuesday, 8 June 2010

Happily for the government, the bad news keeps flooding in.

First, the G20 decides that cutting deficits is now priority number one.

David CameronThen David Cameron pulls a Claude Rains, declaring himself "shocked, shocked" to find that the British government had been running a massive deficit. (And it's going to have to pay loads of interest on it - who knew?)

Now we have a report from Fitch, the ratings agency, reminding the world that fixing the UK public finances will be a "formidable task".

It all makes for the perfect run-up to George Osborne's statement on the comprehensive spending review this afternoon - not to mention his hair-shirt Budget in two weeks' time.

Before the election, the chancellor set "eight benchmarks" by which a Conservative government's economic policies ought to be judged, of which the most concrete was keeping the UK's triple-A credit rating.

A few weeks ago, Fitch downgraded the Spanish government's credit rating - from AAA to AA+. Spain has problems the UK doesn't: it has a bigger current-account deficit than the UK, and it's in the single currency so it can't easily adjust.

But its government made some of the same mistakes as the UK's in the lead-up to the crisis, and its public finances are in a similar state.

This latest Fitch Report makes clear that it would think hard about downgrading the UK, too, if the coalition stuck with the old government's timetable for cutting the deficit.

As I've noted before, the maturity of Britain's debt - and the Treasury's past record of bringing down deficits - give the UK leeway with the ratings agencies that Spain and others do not enjoy. Quite apart from the flexibility provided by not being in the euro.

But even with all that, Britain's vital fiscal statistics do stand out from the rest. A year ago, the goal of halving the deficit over five years looked unambitious, but just about respectable.

However, since the start of this year, nearly all of the major European economies have accelerated their plans to cut borrowing; Germany announced another round of consolidation only yesterday. That has put the UK out of step. In polite company, it is no longer respectable to say you expect to still have a deficit of 4% of GDP in 2015.

Of course, there's a reason why the UK's deficit ends up higher than the others' - it starts off a lot higher. In fact, the primary deficit - that is, the gap between spending and revenues, before taking account of the cost of servicing the debt - is a whopping 9.3% of GDP.

That's larger than any other triple AAA-rated country. Spain's is slightly higher - 9.4% of GDP. But that is one reason why it is no longer AAA.

In effect, the Fitch report says that the June Budget needs to promise to bring the deficit down a fair bit faster to be sure to keep hold of Britain's triple-A rating.

There are caveats: we know, for example, that if the Office for Budget Responsibility produces a much a starker view of Britain's long-term potential growth rates, this could massively increase the structural hole that the government needs to fill.

If so, the ratings agencies might accept that there's a limit to how quickly borrowing can come down. But even here, the lesson of the report is that there would be clear risks to the UK of standing so far outside the pack.

All of which - I need hardly say - will be music to George Osborne's ears.

Some would say the Fitch report painted an overly gloomy of Britain's fiscal future. True, the old budget forecasts for future economic growth look rosy. But to temper the optimism of politicians, Treasury officials also built into the forecasts a pessimistic view of how much of today's borrowing is structural and how much is cyclical.

Even if growth disappoints, it is quite possible that borrowing will fall more quickly, for each percentage point of growth, than the Treasury now expects, just as it rose a lot more than the Treasury expected in the crunch.

After all, borrowing came in lower than forecast in 2009-10, even though the economy shrank by a lot more than expected.

That would be good news. But we won't know the truth for several years. And, once again, any improvement in the borrowing picture could still be dwarfed by the effect of reducing the estimated long-term potential growth rate.

The previous government said the UK could continue to grow 2.5% a year - but many independent economists would disagree. Especially if we can expect immigration to play a smaller role in supporting growth than it has in the recent past.

That is another piece of bad news we can probably expect from the Office for Budget Responsibility when in reports in the next week or so.

There are times in politics when all bad news is good news. For Britain's first post-war coalition government - this is definitely one of those times.

Comments

Page 1 of 3

  • Comment number 1.

    SF said "Now we have a report from Fitch, the ratings agency, reminding the world that fixing the UK public finances will be a "formidable task"."
    --------------------------------------

    I believe the phrase is NSS.

  • Comment number 2.


    For those countries with their own central bank, I reckon the AAA rating works something like this:

    The first is A is given because you pay back the capital.
    The second A is given because you honour the interest payments
    The third A is given because you don’t water down the value of your debt by printing more money.

    Presumably you can get away with it once, but not twice.

  • Comment number 3.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 4.

    So, we all know about the levels of debt for the Euro nations, but what do we hear about the good old profligate USA? Where do they stand, or do the rating agencies not dare to go there?

  • Comment number 5.

    proof as if proof were needed of Labour's scorched earth policy and Brown's pitiful attempt to buy votes with public sector spending totally without though of the consequences of the country's interest.
    Shocking (is it though ?)

  • Comment number 6.


    Are Fitch rating agency now running the country after they did such a good job with assessing CDOs? I didn't vote for them or Moody's or Standard & Poor or indeed anybody else owned by the banks.

  • Comment number 7.

    Let's just get on with it. I'm actually 'looking forward' to the Budget to announce action to get us back 'into the pack'. The psychology of facing difficult times full on is one we should have adopted some time ago. Now we can break free from our political vote winning mentality of dealing with serious problems at a later date. Should the threat to lower growth from lower immigration not be compensated for by spare capacity in the labour market here ?

  • Comment number 8.

    The previous government said the UK could continue to grow 2.5% a year - but many independent economists would disagree. Especially if we can expect immigration to play a smaller role in supporting growth than it has in the recent past.
    Come off it, Stephanie, what 'supporting growth role' did immigration play other than a minor positive one and a major negative one in terms of the employment of UK citizens and deteriorating services and infrastructure?
    Just think of the stimulus to growth and the UK's finances if our 8 million inactive adults are obliged to work under the coalition's plans. Win-win surely!

  • Comment number 9.

    Stephanie,

    ‘Especially if we can expect immigration to play a smaller role in supporting growth than it has in the recent past.’

    Not sure what impact immigration had.

    I thought our recent ‘growth’ was due to a debt bubble –which burst!
    Plus or economy is dependent on what happens in the US and Euro land – who are up to their neck in it too!

    Do you know what happens when everyone tightens their collective belts simultaneously?

    I'm sure the economists/politicians will tell us to prepare for the most likely scenario, forgive me if I prepare for the worst case scenario.

    Has anyone predicted a 20 year depression and WWIII yet?

  • Comment number 10.

    Dear Steph, So it could be worse or better than expected? But we have to cut more to remain in line with everyone else or Fitch and others will be nasty and downgrade us and then our borrowings will cost more? A fine line to be walked then and suddenly the holding back the cutbacks this year seems like a promise too early because the full extent was unknown.

    You seem to hint that maybe the first year of this government will see much sharper cutbacks. Summer of discontent methinks.

  • Comment number 11.

    Oh did anyone really think that the biggest recession in our lifetimes (unless you're over 90) was going to end in anything other that swingeing cuts?
    Did we vote these numskulls in for their brains - or their looks? It seems to me they've failed on both counts.

    After seeing the documentary on the 'undercover social worker' on Dispatches last night - any cuts to that service will result in multiple 'baby P's' happening almost immediately - the service is creaking and about to snap.

    Still, at least George's cuts will shake the blase public awake - once they see what, when and who is getting cut then they will clearly see the battle lines. Currently we're trying to fight a war in a pea soup - but George will change that in his budget - we will all know which side we're on.

    When the cuts are announced - just keep repeating in your head "the bankers got paid millions and now I suffer cuts"

    That should clarify your position - only the bankers will try to justify that - and even then only the truly greedy ones.

  • Comment number 12.

    Stephanie you seem to have changed your view on the economic policies of the Labour government "its government made some of the same mistakes as ours in the lead up to the crisis, and its public finances are in a similar state". I recall you as being generally supportive of Labour's policies.Have you changed your view?
    I also note that you feel that public borrowing may fall more quickly than expected in line with the way that it did in 2009/10. However according to the notayesmanseconomics web blog there are potential issues with this going forwards.
    "a. Our economic growth forecasts are very optimistic.
    b. Our unemployment forecasts are also rather optimistic going forward particularly as I have highlighted above there needs to be cuts in the public-sector.
    c. Tax changes may have shifted revenue into the year just gone and out of the year to come.
    d. Under the self-assessment system taxpayers now have the opportunity to update their future tax payments based on last year which overall was a poor one for the economy."

    So I for one do not feel that we are out of the woods yet.(http://notayesmanseconomics.wordpress.com%29

  • Comment number 13.

    Well it will be the same old story. Money saving will come from within the public services through pay freezer and job cuts and service cutbacks. Its not that i object to the tightening of belts, most of us have been overspending for many years and we need to take responsibility for debt on a personal as well as on a national level. What i do find difficult is that this will not affect those who have the majority of th wealth of theis country. They will claim that the economy can only grow through a free market that makes the few richer and the many poorer. Taxing the wealthy is seen is a dirty word. There used to be a time when governments ran countries but nowadays they are just puppets to the larger financial and global organisations

  • Comment number 14.

    Stephanie,

    It's not gone unnoticed that once again you have a blog about the debt of the UK and still you only discuss public debt.

    "As I've noted before, the maturity of Britain's debt - and the Treasury's past record of bringing down deficits - give the UK leeway with the ratings agencies that Spain and others do not enjoy. Quite apart from the flexibility provided by not being in the euro."

    ..and as I have noted before - the problem in this country is not merely Governement debt - it's TOTAL DEBT

    When you add into this mix the exposure our banks have to countries heading for debt crisis (like Spain) then you will start to understand why it's all going to go so wrong.

    Please read the graph Stephanie - stop this pandering to Government and pointing at Government debt like anyone gives a monkeys. Will it really matter if the country maintains it's credit rating if 80% of the people within are personally bankrupt?

    http://www.businessinsider.com/spanish-debt-contagion-2010-5

    We are intertwined, our debt, Government debt and private sector debt - and yet you fail to see the consequences of this.

    It seems to me the emphasis is wrongly on Government debt - well what does Government debt matter when there is a new banking crisis brought on by an increase in bad loans because the growth simply isn't there.

    How are they going to bail out the banks again without adding to the Government debt?

    Don't think it will happen? - witness Ireland on their 'bailout II' and Spain on their first round of bailouts - and of course all those loverly intertwined European states...

    http://www.businessinsider.com/spanish-debt-contagion-2010-5

    ...that is why certain financial stocks are continuing the downward trend - the market fears more bank failures, and no amount of cuts, talk of cuts, or random hatcheting is going to make any difference.

  • Comment number 15.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 16.

    This is a hugely important time for the government, to delicately tread the line of re-thinking public expenditure whilst maintaining as best as possible services for the vulnerable and not causing major job losses leading to a fall in total demand and large increase in benefits claimants. We all, regardless of political persuasion, need to encourage the best decision making as possible in the interests of the country. There is no glib easy answer and taking the pain over the next few years will help the country get back on it's feet faster. We're a nation of great talent so let's not forget that!

  • Comment number 17.

    The whole world marching solemnly into a depression?

    If every country makes massive cuts at the same time, then what is going to keep the world economy afloat? The private sector won't be the answer as it will be clobbered by loss of governement contracts everywhere and falls in overall demand due to public sector job cuts.

    We can't dig your way out of this situation through austerity measures. We need debts to be written off and asset prices to fall. If a large chunk of all this debt was just written off (and the banks were provided with a way to pass this write-off on to their own creditors), then the problem would just go away. The only problem would be a bunch of rich people whose paper fortunes would have taken a big dint.

  • Comment number 18.

    Perhaps the UK should follow the 'Council of the Eurozone' cue and threaten to set up a ratings agency that only says nice things about us.

  • Comment number 19.

    Let me think...ummmmmmmmmmmmmm, the banks are the ones who benefit from this..higher interest. Think it is time to revisit the bankers and develop a "mortgage" payment on the bad loans assumed by the government(taxpayers). Interest on such loans should be high as banks certainly are risky investments at this time. Just as not all taxpayers took out loans they couldn't afford so some banks must pay for loans they didn't originate.
    It is time the governments try representing the interest of the people. I realize that is a unique political concept but these are difficult times and maybe such a radical approach might work.

  • Comment number 20.

    What I find really amusing is how Labour can now say things like "thanks to Labour's actions, the coalition government had inherited a growing economy".... Yeah right! I love how forgetful politicians can be.

    When you hit the bottom, the only place left to go is up, thanks Labour!

  • Comment number 21.

    Sounds like the Government is a vicious surgeon who wants the patient to be really ill so that he can enjoy mutilating him more.

    You are probably right.

  • Comment number 22.

    How about we start rating the rating agencies..? We could start with Fitch, they get a B- as they appear to be rather out of touch with reality. Objectively the UK does not deserve its AAA rating, so for it to retain that shows how meaningless the ratings are, and investors who rely on them are perhaps rather misguided. The UK has devalued its currency by near zero interest rates, high inflation and printing QE money. Those are not the actions of a country that should retain an AAA rating...

    So why are they keeping us with a AAA? Well the ratings agencies are owned largely by institutions with massive investements that would suffer if the rating were downgraded. This conflict of interest is still unresolved from the days of the Sub-Prime scandal.

    Its really a marker that you just can't trust "the market" as a place to invest.

  • Comment number 23.

    #16 Tonbar said "We're a nation of great talent so let's not forget that!"

    I disagree. This nation voted Labour three times on the trot. That demonstrates that actually we don't deserve to be considered as anything other than utterly stupid.

  • Comment number 24.

    Evening Stephanie,
    love your quote from Casablanca!
    I see Mr Osborne and the Treasury propose to let the electorate make the decisions on which services should be kept and which should be supplied by Charities or the private sector, this is definately from the Sir Humphrey book of the Civil Service!
    I say no cuts WHATSOEVER to front line services.
    Here's a thought which I have mentioned before, QUANGOS.
    The Quangos introduced by the Conservatives and Labour governments are costing the Treasury £64 Billion per year, so, if we abolish ALL Quangos then our deficit problem is solved.
    By definition, they are not accountable to Parliament and as far as I can see provide no benefits to the country. For Example, Offgen has it stopped your energy bills rising by an obscene amount? Or Offwat with water bills, the list goes on and on?
    So let's abolish them all now and see if that has any affect on joe public.
    I would like any views (with examples) of where a Quango has justified it's enormous expense by providing tangible benefits to the people of this country.

  • Comment number 25.

    "Especially if we can expect immigration to play a smaller role in supporting growth than it has in the recent past."

    The industry I work in is full of eastern european workers, mainly Polish doing a great job. The reason is that it is virtually impossible to get English people to even apply for jobs. Less european labour equals less output and struggling business

  • Comment number 26.

    David Milliband disagrees with all of this ... so it must be right!

  • Comment number 27.

    11. writingsonthewall wrote: When the cuts are announced - just keep repeating in your head "the bankers got paid millions and now I suffer cuts"

    That should clarify your position - only the bankers will try to justify that - and even then only the truly greedy ones.


    I seem to remember you work with them, or am I confusing you with armagediontimes? If you do, you must have fun telling them how greedy they are when you are standing at the coffee machine?

    The greedy bankers are only a side-show compared to the real issue. Maybe more than "the straw" that broke the camel's back, but not the main reason.

    Did you know that during the period 1997-2007, i.e. during the continual boom under labour before the crunch, there was zero private sector job growth in the Midlands? {I am in the Midlands}. What was once an industrial wealth generator for the UK instead converted skilled car assembly workers into shelf packers and local government "non-jobs".

    So instead of trying to bash the bankers, who as a Marxist are your Antithesis, you should be more honest and admit we have massive structural problems the length and breadth of the country.

    We are going to suffer so much as a country we will need to start to look out for our neighbours like never before, as so many of us through no fault of our own are likely to suffer massively as we enter the long recession ahead. Just feeling hatred for bankers will be of little help to anyone.

  • Comment number 28.

    Fitch's should downrate us, but not for the reasons they state. Further Labour's original forecast for growth is now wrong, but not because they got it wrong. The reason for both is that we now have a Tory (let's face it) government (not a Labour one), which means to cut government spending at the wrong time. We WILL struggle to pay back the debt because we will NOT be growing anymore.

    It's shocking that Cameron is blaming Labour for a forecast based on Labour spending plans, not the current Tory ones. If we stop growing it will be because of Cameron abdicating his responsibilities as PM to create the economic conditions for growth, i.e. government spending.

  • Comment number 29.

    Re 21 Fairsfair.
    Correct. The Conservatives stand for small government and personal responsibility. This means low taxes (for the rich) and look after yourself (the poor). The current economic situation allows Dave and George to really go for it this time. And the best bit is that Cleggy will carry the can when it all goes pear shaped! Wonder if Dave was warning Margaret Thatcher that her fuel allowance/bus pass were going to be axed, but that her sons offshores would be OK?

  • Comment number 30.

    I am still trying to get my head round this reasoning.

    Are Mr and Mrs Jo Public going to say well done when VAT goes up to 19.5%; when inflation hits double figures; when services are cut by 20% including Health and Education?

    The Government in power will be blamed, they always are.

    Or am I missing something?

    Mike, Londoner living in Barcelona, Spain.

  • Comment number 31.

    Labour's crime was to prop up the unsupportable - the British Economy!

    It serves Cameron's purpose to blame Labour.

    In reality Cameron has no choice over what to do - the numbers condemn us as they have done for over two years. Nothing has in fact changed from the autumn of 2008. There was an inevitable election and in consequence it was necessary to keep propping up the economy. (see unsupportable above.)

    The worst thing that resulted from the zero interest rates and QE has been to re-inflate the bubble economy that created the conditions that led to the crash - that is unforgivable.

    However now that we are beginning to see through the emperor's new clothes we will inevitably experience the terrible retribution of the numbers.

    House price will decline for years, and possible quite rapidly. Banks will need bailing out again as will some building societies. To cut the debt down we have to reduce expenditure by up to 20% (or increase taxes). This inevitably drives the economy into deep recession - a depression most likely. All of this was obvious in 2008 (and before to the numerate!)

    By the way interest rates will inevitably rise, and because the gutless wimps in change haven't done it already they will rise more than they would have done if the regulators had demonstrated that they had a grip on the situation last year. (Fire Mervyn King now, before he and his 200 economists do more damage!)

  • Comment number 32.

    As the grey economic clouds above us steadily turn greyer and greyer, the government continues to find all the doom and gloom it dig out of previous government’s locker to justify their actions, sending us spiralling back down into a double-dip, oh and isn’t the rapid change in pre-election Lib Dem fiscal policy convenient. Now it seems the ‘strong’ coalition government would like us all to suggest way to cut public spending as if they’ve already ran out of ideas. Or might it be they are worried their own ideas might fail, and blaming the previous government could become a worn out sound bite, then they can blame me and you our suggestions. What a noble government. Well personally, I think we still need some more transparency, and in plain English too please, just what the full remuneration package MP’s are still receiving. It is the money they receive to run surgeries that troubles me the most, when I learnt like most of us during the expenses scandal that many of them are staffed by their own family members, and I wonder who is accountable for the work they do and hourly pay they receive, surely not the MP’s themselves, not after what we’ve all been told about their own accounting. I feel certain the politicians could yet yield some leafy savings, including the lot that sit in Brussels, by cutting their numbers, pay and perks like the rest of us.

    What troubles me more though, is that I’ve still not seen the government roll up it's sleeves and get whole-heartedly stuck into the people who were mainly responsible for the current recession and financial hardship we're all still suffering. If memory serves me correctly, it was the investment banks that started worldwide woes, and I still haven’t heard anything that gives me real confidence that it won’t happen again. Are we truly prepared to go through all the growing pains of economic recovery again, and build our new future on the same old dodgy foundations only watch it all crumble around our ears in another 10 years?

  • Comment number 33.

    Oh - and by the way, Britain has the long nose of Brussels looking over the Governments shoulder murmuring "'Maastricht', 'Lisbon', don't forget you signed them will you? You can rest assured we wont".

    Mike, Barcelona

  • Comment number 34.

    Looks like bus passes for the aged will have to go too... How did Labour know this was going to happen. Why did Gordon deny saying this in his election pamphlet. Now he can't claim the credit for knowing better :-)

    When does the discussion move to revenue generation instead of cuts.Its easier to raise £50billion than to cut £6billion. Bring on the 90p tax for Financial Houses,Oil companies, Income above £250k,Inheritance, Capital gains... Problem solved. We all have to tighten our belts innit???.. including them fatcats??

    We will also not be spending another £85billion on bailouts so the opportunities to cut the budget deficit is massive.

    Come on Oscam.. Make it happen. And if you don't get invited to any more posh parties or get disowned by Ashcroft, don't fret.. Lefty parties are much more fun.. No cloaks and masks just mud, music and pints

  • Comment number 35.

    It's called sheparding and herding. The fact that it is taking place on a global scale is a concern as it is clear evidence of a concerted effort by the financial elite to return to the status quo. What is does not do is address the systemic problems of the finacial system as it stands, with a gambling addiction now embedded in behaviour that will continue to destabilise and and steal wealth from populations with an ultimate result that violence will ensue at scale and cost that no one wants. It is this lack of 'rationality' in the markets that now needs purging. Unfortunately those practitioners of what can only be described as 'finacial terrorism' are leopards that cannot change their spots. Like most hard core addicts they will pursue their (gambling)addiction until they destroy themselves and those around them. What is needed is a new system that excludes these past practitioners of excess and carries the kind of sanctions that absolutely ensures they will not try and re enter the finacial system.The cuts planned will only enhance the jeopardy we all face and represents a false prospectus based upon false theory. As I bore myself saying - no more lazy hope and idulgent retrospection - more brain power needed for durable solutions please.

  • Comment number 36.

    Cut Public Sector Pay by 25% they have been overpaid for the last 13 years

    Disband all quango's they are a bunch of overpaid unofficial government Leech's

    Let Property price's fall and stop proping them up with Low interest rate's we all know its overvalued by at least double what it should be
    in the UK!

    Get on with it before before the IMF do it for you Mr C

    Stop wasting time you do not need to ask the public
    most of them care more about who win's x factor or Britains got Talent etc

  • Comment number 37.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 38.

    hi stephanie,
    heard you on pm on radio 4 tonight re chancellor's focus for cuts. can't quote you verbatim but the gist of it was the public sector pay and pensions that have grown so much during the boom years are in the firing line.
    where's your evidence?
    you like your graphs and statistics. let's see them. in the last ten years how much has the lot of an admin assistant or admin officer (for that's the bulk of the civil service) improved? how does that compare to equivalent grades in the finance sector or the happy little bands that terry leahy and stuart rose used to run?
    i'm all yours to be convinced but i think you'll find we're talking about a pretty low wage economy all round at these levels and sweeping, unresearched statements that set low paid against low paid aren't helpful.
    a bit more investigation and less cliches from bbc business please.

  • Comment number 39.

    #28. Charles Jurcich wrote: It's shocking that Cameron is blaming Labour for a forecast based on Labour spending plans, not the current Tory ones. If we stop growing it will be because of Cameron abdicating his responsibilities as PM to create the economic conditions for growth, i.e. government spending.

    Your comment is as reckless as the tragically addicted gambler who has lost everything, and yet still thinks he could win it back if only he could have one more go on the roulette wheel.

    The government have ALREADY played the "government spending" card. They have even printed £200 billion. All it has done is delayed the inevitable, and made the mountain of debt larger.

    When Cameron mentioned the £70 billion of interest charges on the £1.4 Trillion of debt in 2015, this is the best case scenario with us having suffered massive cuts in spending over 5 years. It allows for NO downturn over the next 5 years. As our economy is so strongly linked with the rest of the world, do you REALLY believe we will have 5 years of strong growth in the UK, EU, USA economies, without a single recession or slight downturn?

  • Comment number 40.

    @21 Fairsfair

    I had a dentist who used to be a car mechanic, truly, and he shuddered with joy the day he found I needed a root canal.

    The bizarre truth is that many of the British public are also RELISHING the prospect of nanny state telling them they've been naughty and must feel the crop. After all, when one gets a 10% pay cut, think how PROUD the wife will be telling the neighbours that her man is in the centre of the action, and has a legitimate reason to look angry. He was "in the know" when it came to .com, property investment and now he's there again, part of the story, not some useless doll, tossed on the horns of power and fate.

    I also find it interesting that Germany, despite doing most things right - finding the lower Euro is stoking its manufacturing machine; stumping the risk for its banks folly (and France's) and rescuing the Greek's as a second bird with one stone; ensuring it reduces its deficit to support random fallouts of the Eurozone - is getting grief. The charge is that it's not spending enough outside it's borders. Too right, it should be forced to buy useless tat from other countries. Fair's fair you boys, it doesn't matter that it's not world class engineering, how can our economies float if you won't buy our stuff? Nice to see that free-market competition stuff is working then.

  • Comment number 41.

    What I'd like Stephanie to explain is why most European countries, even Germany, whose deficit is small, are intent on rushing like lemmings towards a full scale depression by simultaneously slashing public spending, consumer demand, exports and much else. (Could we in the UK be back in 1931: a 'national government' stamping on the economic brakes and turning a crash into a prolonged slump?)

  • Comment number 42.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 43.

    We need big, effective, expensive government. Monopolies reduce costs.

  • Comment number 44.

    Cut free bus/Train Travel for Pensioner's with a income of over £20,000 PA

    Withdraw Child benefit From all couple's with joint earnings over £40,000 PA "They do not need it" there are people out of work in the UK trying to live on £60.50 per week Jobseeker's allowance.

    Put VAT up to 25%

    Tax alcohol and Cig's,(skys the Limit on these) they cost the NHS Billions every year, for treating the people poisoning themselve's with them.

    For goodness sake get on with it the dogs in the street know what needs to be cut!

  • Comment number 45.

    The word is DENIAL. The BoE is in denial as they are concerned about deflation while all the data indicates inflation is rising day by day (the current offcial inflation rate stands at 3.7% vs 2% target rate). The BoE believes growth can be achieved by printing money and setting near zero interest rates, while all the economic data indicates growth is nearly stalled. The BoE believes devaluing the Pound would help exports, but the data indicates exports are falling due to high import cost of raw materials. So it seems most likely that the current policies are not working. Shouldn't they change? Yes, Unless Perception is obscured.

  • Comment number 46.

    17. Random Thought

    "If a large chunk of all this debt was just written off (and the banks were provided with a way to pass this write-off on to their own creditors), then the problem would just go away."

    Thats crazy talk, all it does is move the problem from one place (the debtors) onto someone else (creditors). You have just rewarded all the profligate spenders who have bought expensive houses and given them to them for free. Savers, on the other hand (creditors/investors), well you have just stolen all their money...

    Explain how that is the right thing to do...! The merest hint that it was going to happen and I, and millions of others, will just call in all our savings/bonds/pensions into cash and stuff it under the bed to protect it. The result would be a run on the banks that would make Northern Rock look like a queue for tea at a nice graden centre.

    The debtors have to be the ones to suffer, not be rescued at the expense of those with slightly more sense.

  • Comment number 47.

    With regard to revenue generation... Is interest revenue at the BoE regarded as revenue to HM treasury?? .. Maastricht Treaty says we are not allowed to say so but we all know that it is so.

    Who else do we owe money too.. The banks that we own.. another neutral cost effect. We also owe money to local pension funds... Rather that than the burden of paying additional state pensions.. and then we do owe some foreign and local shortterm investors.. Our net interest bill is therefore approximately £12billion.. A projection of £70billion in 5 years time is a bit extreme.. but its all about the size of the scare rather than the deficit.. Shock therapy to install a new order??

  • Comment number 48.

    36. At 8:33pm on 08 Jun 2010, Jeff King wrote: Cut Public Sector Pay by 25% they have been overpaid for the last 13 years...
    ______________________

    Does my 90p tax not excite you more (read 34)... its easier to implement ;-)... or are you one of them super rich dudes??

  • Comment number 49.

    #44. At 9:01pm on 08 Jun 2010, Jeff King wrote:
    > Cut free bus/Train Travel for Pensioner's with a income of over £20,000 PA
    Speaking as someone in this category, I TOTALLY AGREE.
    > Withdraw Child benefit From all couple's with joint earnings over £40,000 PA
    YES YES
    > Put VAT up to 25%
    Painful but necessary.
    > Tax alcohol and Cig's,(skys the Limit on these)
    AGREE
    When will everyone wake up to the fact that we are all in this mess together? And don't forget whose irresponsible financial policies got us here - and don't forget that in May 2015!

  • Comment number 50.

    45. At 9:10pm on 08 Jun 2010, sammy wrote:
    The word is DENIAL....

    The money that the BoE printed went straight into the City who bought dollars so that they could buy commodities. This has a double inflationary effect.. Sterling devalues and commodity prices rise.

    Commodities are then held in storage to create false scarcity to further increase prices which in turn increases the price of consumables.. which makes the CPI look bad.. which makes morons squeel at the BoE to raise interest rates because they believe that Joe public has to much spare cash

  • Comment number 51.

    24. At 7:02pm on 08 Jun 2010, splendidhashbrowns wrote:

    Evening Stephanie,
    love your quote from Casablanca!
    I see Mr Osborne and the Treasury propose to let the electorate make the decisions on which services should be kept and which should be supplied by Charities or the private sector, this is definately from the Sir Humphrey book of the Civil Service!
    I say no cuts WHATSOEVER to front line services.
    Here's a thought which I have mentioned before, QUANGOS.
    The Quangos introduced by the Conservatives and Labour governments are costing the Treasury £64 Billion per year, so, if we abolish ALL Quangos then our deficit problem is solved.
    By definition, they are not accountable to Parliament and as far as I can see provide no benefits to the country. For Example, Offgen has it stopped your energy bills rising by an obscene amount? Or Offwat with water bills, the list goes on and on?
    So let's abolish them all now and see if that has any affect on joe public.
    I would like any views (with examples) of where a Quango has justified it's enormous expense by providing tangible benefits to the people of this country.

    Just one problem with this idea there will be noone to look out for your rights like ACAS for Employment rights, negotiating between management and unions when asked by one of the parties concerned and helping them to come to agreements. The Low Pay Commission holding companies who pay below the minimum wage accountable, recommending the new rates each year for each age group, and prosecuting them if they don't comply. OFCom to hold telephone and broadband suppliers to account. They are not to save money but to regulate the industries and advise governments of possible new regulations in their sectors and industries. most of these are run by big businesssmen who know the industry.

    Which services should be supplied by the private setor from the public sector is the definition of privatsation. Trains, gas, electric, telephone and soon the post office. charities are not in aposition to take on public sector services.

  • Comment number 52.

    Economists and their stupid models got it wrong again, these savings will plunge us back in to the recession, that will require even more cuts, more contraction will follow etc. etc. Depression, here we come!

    The sad truth is we are hooked to ever growing levels of debt for companies to make profit and to rich to accumulate wealth. It's crisis in capitalism, just like Marx predicted.

    Only if policy makers realized money supply is endogenous, there is no money multiplier and government can very well print some money to fund itself without causing inflation we could be saved.

  • Comment number 53.

    #46. NonLondonView wrote:

    "That's crazy talk..." (write off debts, but retain ownership of the secured asset)

    But it does show how appallingly bad the position is for some borrowers. (see KevinB, Random Thought etc...) that they think that they will be able to escape their debts. Let me tell them that the only way they can do this in this manner is to die. Death wipes out debts in the UK, but not in all jurisdictions, but even death offers no escape where there are guarantors.

    These appallingly imprudent (or just unlucky?) borrowers are stuck with their debt which will inevitably cost more and more to service - that is the grim reality that they cannot face and they will also have to face up to chronic negative equity.

  • Comment number 54.

    A really serious David Cameron would announce that all MP's and senior civils servants are to lose their 1/40th index linked pensions as of dec 31st, and will have a money purchase scheme, with them putting in 8% and we the tax payer adding 8%. That would set an example in dealing with public sector pensions.

    Also let's start naming private company directors salaries.

  • Comment number 55.

    How much is PFI costing us? Each year for the next 15-20? Started under the tories, increased under labour, how to avoid owning up to what things cost. It's good though that the Telegraph fights to keep capital gains tax at 18% where labour put it, rather than the 40% it was under Mrs Thatcher. The rich had better suffer along with the rest of us

  • Comment number 56.

    #47. Supersage64 wrote:

    "A projection of £70billion in 5 years time is a bit extreme"

    Sorry, if anything the bill could be double and is unlikely to be half.

    Firstly because the cuts will not actually take place and thus the reductions in the deficit (see one of my earlier posts today) will not take place. (Generally this is the result of all UK Government action, historically.)

    And secondly, it is highly unlikely that the rate of interest payable will be kept as low as has been estimated.

    Thirdly the impact of inflation and growth (or more probably the negative) have been not evaluated, let alone estimated. The actual size of the budget hole is likely to be far larger (2 or more times?) than the £1.4 tn predicted for all the above reasons. So analytically there must be more upside risk on the annual interest payment in five years time, mustn't there?

  • Comment number 57.

    My modelled forecast is that real GDP will grow in the 2 - 2.5% range this year with little downside risk. I continue to see net issuance undershooting current expectation over the next 12 months. The problem comes in the following year given the lags in the reduction of the wage element in public spending. Generous redundancy settlements of up to the equivalent of 12 months pay or more (see the CSCS ruling in the High Court on 10 May) means that it is very difficult to shed labour cost quickly. For this reason one has to factor in a substantial increase in tax to approach the Government's debt reduction target.
    If there is an across the board cut of (say) 5% in PS pay, an increase in VAT to 20%, and a moritorium on capital spending then that would be a good start. Unemployment will rise quickly as demand is taken out of the economy and as in previous recessions that will impact most upon young entrants to the labour market. This will be exacerbated by the suggested reduction in university places. The cost of benefits to this age group could more than offset the saving in university block grants and student loan finance costs.
    Whatever the shape of the Government package it will only start to bite in the 2nd and 3rd quarter 2011 and on the basis of previous recessions Growth will falter towards the end of 2011. It will be very painful, far worse on my estimates than 1981-1983, and given our structural disadvantages compared with Canada, for example, I believe that we will not start to emerge until 2015 at the very earliest.
    My advice to all those urging rapid and deep spending cuts: beware of what you wish for. There is an alternative strategy but it would entail international agreement - but that is for another posting.

  • Comment number 58.

    Why not pay off the whole debt in one single payment by just printing the money over a weekend?
    Pensions would be safe, people would begin spending back into the economy, wages could go up in China as they could sell to us, that means they could buy from us in return.

    it is a win win result. We would also only lose one 'A' from our rating (going by previous form) not a bad deal as we would be debt free.

    Bonuses would thus also be effectively taxed, which would be about time, yet the banks would be liquid again and get a second chance; to put investments into ethical green solutions so the population didn't feel so much like lynching them.
    Good investments to enrich life on this planet, for sustainability, liberation from miserable toil. There are perfectly good robots which we could all be tending ready to be made.
    Economies/ markets, do not work if wages and conditions get cut; Nobody can afford to buy.
    Fiercer competition only makes it worse.. if competitors fail then markets shrink even more.
    Cuts in services means skills base disintegrates, It was only in the Victorian mills that browbeating people got more yarn.. even that fell to pieces as workers broke the mills.
    So far we have experienced a localized financial meltdown.
    In the 40s, living standards rose due to rationing being introduced for large parts of the population.
    We made hunger a thing of the past with the stroke of a pen.
    People went to work doing useful things, we built up industry, socialized rail and pretty much all other big sectors. we developed infrastructure, after WW2 we produced social housing, schools, universities, whole towns, and created the NHS.
    Those were the solutions to the crisis of capitalism of 1929.
    Try to understand why cutting those very kinds of social project is wrong now.
    They were indeed a great part of the reason for our hyped fake boom later on when much was sold off or junked.
    Thatcher and Regan broke it because people believed cold war propaganda over common sense.
    Knocking down a hospital to build a car park will make profit in days.. but it destroys a lot more wealth.
    Educated, healthy, innovative, motivated population are not made by giving the mega rich bigger bonuses.

    If in the 70s we had invested in green energy in an 'as big as the NHS' way, then we would have been in debt for a while, but by now we would be in bushy clover.
    In Germany all new buildings are fitted with solar panels.
    Imagine if you were a corp wanting to move to EU.
    Cheap energy Germany? low crime, highly skilled
    or gloomy individualistic street idiot UK?
    UK is a nation of shopkeepers, they need to be quiet now. We need to become a nation where the working class have their say.
    Denmark and Norway have excellent living standards, healthy economy, well regulated banks, next to no crime.
    They taxed the rich hard and equalized much more.
    We need to socialize industry when it gets broken, whether it is Nazis or banks that wreck it.

    Produce for wealth not for profit, everybody will do well including the city.

    capitalism is a religion. a delusion. it does not work, it was only resurrected by banks, oil and arms corps in the 80s.
    capitalists rushing into a market, saturating it, competition through bigger and bigger blocks failing is absurd, not least because nobody can sell when they win, plus they suck up all the wealth around them too.
    it replicates, it wastes massive investments, it is blind, it does not pay for damage it causes.. it has only existed since Regan and Thatcher broke the socialized systems we were evolving..
    Time to move on.
    Revolution is in the air again, it is on the streets of Greece. as cuts bite it will come to the UK too.
    Socialize for fair distribution, education, Nature projects, music and Art centres, all jobs are good provided we get some basic planning.
    let us run markets too, fun competition which will enhance the economy but is safely limited so that it won't wreck lives.
    One way or another, Tax the top 5% back to Earth orbit. make them pay.
    We need to work towards a more informed population.

    A nation of broom pushers is useless in this day and age.
    We should be becoming robot engineers and designers, doctors and technicians.
    Aim higher UK.
    Move out of the limited paradigm of capitalism.
    We need not compete. cooperation and just taking things over to solve problems is possible too.
    agreements to cancel debt should be on the table too.

  • Comment number 59.

    Number 17, random_thought, and number 24, splendidhashbrowns have made good points, debt write offs and falls in asset prices will happen on an international scale and our own Quangos must be scrapped.
    Having recently experienced financial problems due to loss of work and being unable to continue making payments on large credit card bills, the Citizens Advice Bureau "rearranged" my payments to reflect what I could actually pay, but, and this is a big but, no more luxuries, (expensive holidays abroad etc.) and Get a Job.
    In the case of the UK, one very expensive luxury springs to mind, that seems to have escaped the attention of everyone.
    Stop paying EU membership fees, that should save at a guess, £10 - 15 billion per year, then having been thrown out and free of their meddling, with less business regulation, freedom from the great carbon dioxide tax hoax and the freedom to dump our rubbish how it suits us locally and the freedom to fish our own waters how we see fit and on almost ad infinitum, that should add on at least £25 billion a year to our national income.
    To the rest of you I say "Get Real, Get out and Get On".

  • Comment number 60.

    @39: jonearle

    Well said. I could hardly agree more, on both your posts. My one difference is that I don't think the problems are quite as urgent as you portray.

    In the UK we do not have serious worries about being able to fund our deficit because of the long term way our debt is structured. In other words we have time to make the necessary adjustments.

    We are possibly vulnerable to short term market pound scares, but, on the other hand, this will help our exporters and we do not have a genuine inflation problem now (though we do need to keep a close eye on this - inflation is an economy-killer).

    For people who are concerned about the impact of fiscal tightening on growth, remember ... we can and should have a reasonably loose monetary policy. Private sector growth is what our government should now be aiming for. If that doesn't work, will the last person to leave please switch off the lights? But, you know, the private sector has never failed to deliver growth if it's ever been given half a chance.

  • Comment number 61.

    Just a word on possible future VAT rises. If the govt puts it up to 19.5%, I will lose the faith I had in them. Think of those millions of shopkeeper-hours spent fiddling around with calculators! For God's sake, can we have some sensible round numbers in Whitehall? 20%, 22% or 25%. If they were running a small business, they wouldn't go anywhere near the decimal key!

  • Comment number 62.

    No problem with drastic cutbacks but isn't a significant proportion of the public sector borrowing money that was 'invested' into various UK lending establishments which at some point will repay handsomely? I don't hear this talked about at all or is repayment so far into the future to make it unpredictable / not useful for planning over a parliament?

  • Comment number 63.

    #46 NonLondonView

    "Thats crazy talk, all it does is move the problem from one place (the debtors) onto someone else (creditors). You have just rewarded all the profligate spenders who have bought expensive houses and given them to them for free. Savers, on the other hand (creditors/investors), well you have just stolen all their money..."

    Crazy? Well I'd certainly prefer to go about things in a more controlled and fair fashion - essentially using taxation to redistribute wealth from the rich to the poor to compensate for the past 30 years of increasing inequality. But the end result is pretty much the same - a large chunk of net debtors' debts would effectively be paid/written off and a large chunk of net creditors' money would have been taken away to pay for it.

    It may be galling to think that profligate spenders should be (to some extent) let off. But there really is no other way. If we punish them by subjecting them to years (decades?) of austerity, we punish everyone else too by removing the consumers for all our goods and forcing the world economy into a depression. We should never have let the debt (particularly private debt) build up to this extent in the first place - but it's a bit late now.

    Also of course, I'm not sure you can call people "profligate" just because they have had to take on huge mortgages to buy grossly overvalued houses (fearing they had to jump on the housing ladder before it was too late). And remember of course that the ones who actually made most money from the housing price bubble were those that owned the land and property in the first place - essentially the rich (net creditors) again.

  • Comment number 64.

    #4 Johnny Arrowmaker wrote:

    So, we all know about the levels of debt for the Euro nations, but what do we hear about the good old profligate USA? Where do they stand, or do the rating agencies not dare to go there?

    ------------------------------------

    ...er...all the ratings agencies are based there!

  • Comment number 65.

    27. At 7:37pm on 08 Jun 2010, jonearle wrote: "Did you know that during the period 1997-2007, i.e. during the continual boom under labour before the crunch, there was zero private sector job growth in the Midlands? {I am in the Midlands}. What was once an industrial wealth generator for the UK instead converted skilled car assembly workers into shelf packers and local government "non-jobs"."

    It's the same story all over the country ... one even yearns for the days when call-centre work was still an option in the UK. It is the existence of the 'shelf-stacker' classes who have served to make unemployment seem not to be so bad at the moment. These people are often employed on 12-15 hour per week contracts whilst being expected to work as much as the company wants them to in the most statistically prudent way possible ... i.e. minimizing the entitlement of the employee to paid break-times and holidays, pensions and so on.

    It seems to me that an economy cannot be sustained by banking, services and retail. I cannot see how 70 million people are going to be able to live in the manner to which we have been accustomed for the last 50, or maybe 150, years. Where is the money for the shopping going to come from? Where is the shopping itself going to come from?

    When I hear talk of global laws for the banking sector, it makes me worry that such a tax can only serve as a subtle means of further consolidating the power of a global financial oligarchy that is turning states into prostitutes and their citizens into slaves.

  • Comment number 66.

    56. At 10:49pm on 08 Jun 2010, John_from_Hendon wrote:
    #47. Supersage64 wrote:

    "A projection of £70billion in 5 years time is a bit extreme"

    Sorry, if anything the bill could be double and is unlikely to be half.

    _____________________________________________

    The only reliable numbers that we have are as follows:
    * £770billion total debt (Hopefully the correct number)
    * £285Billion government debt held by the BoE
    * The 08/09 outturn expenditure as measured against the provisions for that year

    All other numbers are loose projections based on loose projections based of loose projections...

    The 09/10 outturn expenditure report is due and could contradict everything the Tories are trying to make us believe.. but then they could sex up the report... Its not beyond them. It will obviously be unaudited. Auditors will run a mile if asked to sign off dodgy numbers.. or maybe not??

    The projection of £70billion interest and £1.4T total debt assumes continued spend on bailouts.. Why else would we be spending substantially more than we have spent in 08/09 less bailouts

  • Comment number 67.

    OK

    Turn your PCs off and go and spend some money

    Preferably something manufactured or assembled in the UK

    The more expensive the better for more VAT receipts - no more bargain basement stuff

    Go to the theatre or the cinema

    Go to the pub for a pint, nor more pints in front of the PC or TV

    Buy a bottle of wine or gin, have a glass with your dinner every day

    Have a nice cup of tea somewhere with a piece of cake

    Pay for parking

    Buy a CD from a shop don't download - keeps a student employed

    Decide to move because it will generate stamp duty and jobs for estate agents and surveyors etc

    Join a gym, get fit and stop going to the doctors with every ache and pain

    Just get out and do something

    Pay your bus fare even if you get it free. Pay for your TV licence too and swimming

    Stop hunkering down

    Do your patriotic duty

  • Comment number 68.

  • Comment number 69.

    @63 random_thought

    Yes, these thoughts are very random - I'm not sure whose economic welfare you're going to undermine next! Why don't we destroy all money, live in caves and grunt at each other? Because this is where your 'policies' would tend to take us.

  • Comment number 70.

    @58 marsCubed

    I personally completely agree that your ideas are the way Britain should be heading, and should have been heading without pause circa 1979.

    However, do you really think that the population has the inclination, interest or will to further those ideas? I think we have a broadly ill-educated population, even those with degrees these days. We also have a massive self-interested group of property investors, whether their own homes or not it is a habit that has a stranglehold upon our attitudes. And of course we have the bankers and other speculators who are so blinkered in their quest for short-term profit they just won't buy these concepts.

    I find it very sad. We could have been such a great country again.

  • Comment number 71.

    Conspiracy theory would say that in 1978/9 a select group of Tory support was aggrevating union unrest and strike breaking. Behold the saviour, oops not Sir Keith Joseph as planned, but the softer(?) face of Margaret Thatcher, and look what happened then. Social destruction, communities dessimated in the drive for profit and ultimate fiscal greed ("loads of money" being the chant of the 1980s).

    Now, over the last two or three years the fiscal bubble created by the Thatcher "self-interest"; making profit at all cost; "self-regulation" and "Market Forces" for all (Adam Smith for ever, even on the back of the bank notes), has burst. The financial system has held governments around the world to ransom - "bail us out or capitalism collapses". Not just a few banks going under, but the whole system stopping - no money. Duly supported by "non-existent" taxpayers' money (remember the fiscal easing by the Bank of England increasing the national debt) the banks carried on as though they had done nothing wrong. RBS used the money provided to loan the Kraft (American food company struggling in its own market) to purchase Cadbury (British confectionary company doing quite nicely thank you. Does this remind any Manchester United, Liverpool, or Aston Villa fans of the continuing saga of debt-ridden purchases and what they lead to?

    Then, as before, along comes a Tory government (though this time voters still remembered the Thatcher' government) hiding behind the sychophantic, desperate to be seen as possibly being able to do anything, Liberal Democrats - to revert back to Thatcherite destruction.

    Social change as monitored by research since the Second World War (the one we keep celebrating whilst condeming any we get involved with) shows that it takes 20-30 years for political innitiatives to have detectable social outcomes. Hence the NHS has greatly improved the overall health of the British public - greed and packaged meals aside; The Open University has increased social mobility by providing second chances to move from blue to white collar employment. For all the continuing complaining, State Education has moved steadily toward providing opportunity for greater numbers. Interestingly, the only gaps in this social research occur when Thatcher ("Society is dead") comes to power and cuts the funding, as is now proposed by Cameron.

    Yet again the public is duped by those operating to a different agenda to social change, engineered social upheaval is followed by social destruction that sets back the development of social cohesion by 30 years. This, so called coalition government, is Tory revenge on the British public for so long humiliating the Tories (land-slide defeat, followed by 2 routings, one after an unpopular war) and demonstrating that collectively we all want a greater equality in our social order. However, the outcome will be a greater re-aligning of wealth toward the rich trhan was envisaged by Thatcher; a greater political gerimandering than was envisaged by Lady Porter (maybe she can come back from Isreal now).

    Every member of the electorate should be shown the Peter Cook film "The Rise and Rise of Michael Rimmer" - the con has been made - the punters have fallen for the flim-flam - we will all be involved in making ourselves impoverished according to the saintly Cameron. Well all of us who are not multi-millionaires (or married into millions) will become poorer, from loss of social structures that support communities destroyed by previous Tory governments. Remember it was the financial system that was bombarding everyone of us to borrow more; to have bigger and unaffordable mortgages; to have the luxuries of celebreties. The self-regulating institutions expending the debt bubble to create Thatcher's home and share owning Britain. Bank Directors greedily want to gorge on the trough of American debt; the same "rating organisations" that approved these packaged debts are now insisting that whole countrys are risks when they were giving Lehmann Brothers AAA ratings.

    To whose benefit has the past three years been; to paraphrase Sherlock Holmes - in any crime find the person who has most to gain and you identifty the criminal. To claim the the finicial world has changed, because "rating agencies" are threatening governments is to miss the point that these institutions are the root cause. That the notion of "profit at all cost" is at the cost of millions of lives worldwide, while very few, already exceedinglyt wealthy individuals pull the strings.

    What Obama, Brown, et. al. did to save the banking system will ultimately lead to their political demise, along with the aspirations of the workers of the world. The Camerons and Osbornes of the world are puppets of far more malicious masters (just as Thatcher). The system will ultimately destroy what has taken 80 to 90 years to establish, the majority of the population will work until they die, lose rights and any hope of change; marginalised by a plethera of information overload and sham representation. In the new "open" society; the new "self-help" society, it will be the privileged and the manipulative who will make the "help yourself" society. I think it is called American Capitalism where you get nothing unless you have the money.

    I think the cave and grunting is sounding the better option #69.

  • Comment number 72.

    State created money is added to Government revenue and reduces tax levels. Most money is created through the rules governing banking, by commercial, profit-seeking banks as loans or mortgages. Rather than going to reduce the taxes This generates profit for the banking sector. This provides a banking sector subsidy of £200Bn a year. The creation of money, in this way, destabilises the economy into cyclic growth and contraction in order to guarantee profit in the Banking Sector.

    A few small changes to the rules governing bank accounts would prevent banks from creating that money supply. By restoring creation of money to a public agency of the state - the Bank of England under the direction of the Monetary Policy Committee for example - then a cut of £200Bn is effected immediately. This is not a cut over four or five years but an immediate and sustained, structural change that ringfences all public services. The seemingly complex banking system only needs a simple rule change: only credit an account when a simultaneous debit by the same amount occurs. Money can then only be created by the state agency. The government will hold an account, known as the ‘Central Government Account’ with the Bank of England. The Bank of England’s Issue Department will increase the balance of this account without simultaneously reducing the balance of any other account. By making this credit without making a matching debit, they are creating new money. This should be the only source of money.


    This is, undoubtably the first step: bringing the public purse under control of the public. It also has the advantage of a year on year cut of £200Bn a year. That wipes out the Banking Crisis at its root instead of tinkering with spreading misery throughout ordinary people. Indeed, the immediate effect is to place £4,000 into the economy for every single person. This is not a new, or original, suggestion. But it is a good deal more decisive and effective than cutting spending.

    This would allow the Monetary Policy Committee to remove the need for "Credit Reference Agencies". Indeed, it would allow commercially independent assessment of Banking Institutions in order to determine if they should be allowed to fail. The analysis provided by these organisations was signally lacking in the lead up to the collapse of the Banking System. A lack that suggests their opinions, well propagandised with statistics, are not that substantial.

    Taking radical, democratic, public interest control of the issue of money would achieve the "objectives" set out in such Banking Potboilers. The Banks might not like it - but then the Banks do not need the NHS or Pensions or other social provisions. Their priority is the accumulation of profit to disburse to shareholders.

    The £200Bn associated with this simple change results from a legislative change - underlining that the Credit References dished out by private organisations are of little value in the real world.

  • Comment number 73.

    72. At 02:43am on 09 Jun 2010, hubert huzzah

    Thank you
    I'm trying very hard but am unable to find any thing wrong with your suggestion. Can it really be that simple? and where did you get the figure of £200billion from? Is that the current annual increase in the money supply?

  • Comment number 74.

    I'm sick of hearing about the sage advice of these 'ratings agencies'. Had they themselves been rated on their own performance in the lead up to the credit crunch I doubt they would have achieved more than a D(-).

    Do buyers of Government bonds really need the advice of these supposed experts before they agree upon the terms at which they lend to us?

    For that matter is the whole Government bond market not ripe for the scrapheap? Why can't we just borrow direct from the Arab and Chinese governments and cut out the middlemen and ratings 'experts'.

    Alternatively we could always sell them the Isle of Wight as a tax/duty free zone!!

    Any ideas how much this would raise?

  • Comment number 75.

    We all know that how these economy scenes are created and manipulated in business, so once again every good news is bad news and every bad news is good news. It is the game of gamblers and let them enjoy their their game of love and hate. Wish you all the best.

  • Comment number 76.

    Why are you and the government only talking about reducing the deficit? Doing so little just means our debt keeps on getting worse! As a country we need to do what we as individuals have had to do: spend less than we earn.
    When do the government expect to repay even some of the debt?
    Andy

  • Comment number 77.

    @72 Hubert Huzzah

    Yes that sounds great. £200 billion for nothing. There must be a catch. Oh yes - you've just removed private credit to industry and the consumer (for many years the locomotive of our economy). This would cause economic collapse in months. Let's not chase chimeras. There is no spare money under the floorboards. There are no easy answers.

    Incidentally I don't have the figures to hand but £200 billion sounds to me as if it's on the low side.

  • Comment number 78.

    A few months ago my local council sent me a questionaire asking me which services should be cut to make savings. They offered a choice of schools, hospitals, rubbish collection etc.
    My answer was that I dont want to lose any of these, and they were looking at the whole issue in the wrong way.
    I quoted from a 'Dilbert' cartoon. Keep all the council people who have actually met a taxpayer, face-to-face, in the last week. That means teachers, nurses, librarians and bin men are safe. Then halve the pay of any employee who hasn't seen a customer for a month. Anyone who hasn't seen the public for more than a year should lose their job immediately. The same principle applies to all thier buildings and vehicles. We would lose nearly all the planners, managers and advisors and most of us will never notice they have gone.
    The same general idea would apply to national government.
    Of course Dilbert is being over simplistic and is trying to be funny, but the principle behind the comedy still seems pretty good to me.
    Andy

  • Comment number 79.

    There are basically two different types of constraint on policy for the world at the moment:

    a) Private debt
    b) Public debt

    Countries like the US and the UK have a main problem of private debt levels being so high that deflationary forces prevent them from raising taxes, interest rates, or anything else that might affect GDP. It's almost impossible for them to figure out ways of raising prosperity because the systems and ideas of debt creation being equated with wealth are too ingrained into the social fabric.

    Countries like Poland and the Czech Republic might have fairly high public debt levels, but their private debt levels are very low. The challenge for these countries is a technical one: what to do and make that these potential domestic or similar foreign spenders will buy, to keep everyone in a job and to keep the taxes up to pay off the public debt.

    In type b) countries the policy need not be to introduce cuts, but to make better policy judgements about economic stimulus. In type a) countries the only way out is debt write-off.

  • Comment number 80.

    77. At 08:28am on 09 Jun 2010, capncook

    Capn, i think you're missing Hubert's point i.e. to take away the power of the banks to create money and put it in the hands of the BOE. Surely the BOE could mitigate the immediate effects of the reduction in credit?

  • Comment number 81.

    I would like an explanation from someone please, especially Mr.Osborne. Isn't the bulk of the Deficit down to the emergency bale-out for the banks? And didn't Gordon Brown pledge that this money had been provided in such a way that the banks would repay ALL of it to the public purse? Hasn't some been repaid already? How much will be repaid year on year?

    Shouldn't we be having the public debate on the basis of the non-bank bail-out deficit alone? How much is that, and to what extent is it greater than in past years?

    Before we allow the Coalition to throw large numbers of babies out with the bathwater, and plunge us into a double-dip recession and appalling unemployment I really think we ought to pause for clarification here, for it seems to me that we are being sold a pup, on ideological lines. Are you happy with that, Lib Dem MPS?

    Oh, and before sick and disabled people and pensioners are squeezed further into poverty, can we please have also a proper breakdown from Mr. Osborne of the huge sums involved in what is NOT paid to the State by rich people, alongside what IS paid to poor people?

    As I see it, our problems have been caused largely by irresponsible bankers and the failure of politicians to adequately regulate them, yet the Coalition answer is to bash the victims of those failures, keep bank regulation weak and let the bankers off the hook, still free to indulge in their strange world of make-believe money.

  • Comment number 82.

    #79. Oblivion wrote:

    "In type a) countries (over-indebted private sector) the only way out is debt write-off."

    What rubbish you write.

    Debt cannot be written off without repossession of the secured assets and the return of these assets to the market at far lower prices. If this is what you mean then you may be right, but the process will require mass default and bankruptcy of the over-indebted individuals, repossession and distressed sale of the assets by the lenders and then the bailing out of the lenders by the rest of us.

    The small hopeless gang of blogistas who are hoping against hope and all rationality that they will be allowed to steal the assets they have borrowed too much money to 'buy' is just ridiculous.

    The must default, declare bankruptcy and hand the assets over to the lender. The lenders in possession of the secured assets must then 'distressed' sell the assets fro what they can get and any resulting deficit in the lenders will have to be rescued by the taxpayer (or not!)

  • Comment number 83.

    "As a country we need to do what we as individuals have had to do: spend less than we earn. "

    Actually we don't - Governments with a sovereign currency don't earn. The government is not financially constrained as an individual is because it is the monopoly issuer of the currency and can enforce taxation punitively.

    Thinking that a government is like a household is 1930s thinking (where money was backed by real gold) and that caused the depression. You would have thought that thinking would have moved on from then, but apparently not.

    What a government has to do is spend. It has to spend wisely and obtain maximum value for the money, but spend it must. The money is then created in the computers to make this happen. 'Printed' if you like.

    However to get people to use its otherwise worthless currency and to keep price and asset inflation under control the government must then tax. Taxation is the pump priming 'suck' that forces money to flow around the economy. (Actors in the economy must earn in the currency if they are to pay their taxes). Again the government must tax wisely and consistently, but only enough to keep inflation under control. The money so taxed is then 'burnt' in the fires of the computers.

    The problem is that the government has constrained itself with more and more financial 'rules' dictated by the capitalists in the market, so it operates in a gold standard like strait-jacket.

    We shall see, but I expect that all that will happen with the current approach is that we shall swap 'structural deficit' spending for non-structural - in the form of unemployment benefit.

  • Comment number 84.

    "In type a) countries the only way out is debt write-off."

    Or a write-out. Create the £s necessary to buy up the sterling denominated debt people don't want and cancel it.

  • Comment number 85.

    Oh Just get on with it, sick of hearing "whats going to happen?" WW3, Blame the Bankers etc...I'm young, probably going to pay the brunt of this mess, made by most of these poster's buying chelsea tractors on credit, property portfolio's dwindling by the day (you reep what you sow), and DFS sofa's on 20 year credit..

    Its not like mankind hasn't evolved in the past 2000 years, get over it, its going to be hard, thats life.

    "I blame the bankers, no, I blame Labour, no, I blame the public" SHUT UP, go and do some work.

  • Comment number 86.

    #61. capncook wrote:

    "If the govt puts it up to 19.5%, I will lose the faith I had in them."

    This statement shows just how little understanding you have in the imperative of the financial mess we are in! If your 'faith' depends on 2% on VAT you are indeed shallow in thought and self-centred in outlook! Why on earth did you place your 'faith' in them in the first place? You were either willing to accept that the Tory party will only help it friends as they have done in the past or you should have voted otherwise - oh sorry you can't as we in fact have three Tory parties!

  • Comment number 87.

    Although I understand the political sentiment behind your opening statement, it would clearly be cynical for what is going to be very bad news for the man on the street to be regarded as a source of overwhelming joy by Cameron & Co. Cynical but not impossible, of course.
    In any case I am not so sure it is happy news for the government, which is shortly going to be become very unpopular if it really does act to slash the deficit and ultimately the debt - not helped by the likes of Prescott going around with accusations of "government for the few, not for the many" (so just who was it who gave a load of money to a few bankers, Mr Prescott?). The government will be the one associated with the cuts and is presumably hoping memories of the pain will have faded in the flush of a new boom by the time of the next election. While evidence such as Fitch's report may provide useful collateral for implementing cuts and in pointing the finger at Labour, anything that represents not just support but also revelation that the public finances are even worse than previously thought will simply make the government's life harder.
    In many ways it would therefore suit Cameron just fine to unearth a previously unknown massive crock of gold at the end of the rainbow. However I'm not holding my breath; I expect Brown sold the rainbow as well.

  • Comment number 88.

    i dont want to lose all the services that directly benefit me..schools, hospitals, rubbish collection etc..i think that the state should provide these services as the improve the quality of living for the british people.
    I think that much of the foreign policy we have wastes enoromous amount of tax payers money and it goes unaccounted. if we stopped interferring in other people's business we would waste less money sending troop out and also wasting resource as we spy on one another by becoming a police state.
    I hate debt and interest payment and huge tax, and at the same time the huge inequality of wealth. we need a system that looks after our poor and needy. we need a new caring and loving state.
    we should have mechanism that prevents companies such as tesco from growing too big. this would enable more locals in our society to own businesses such as a supermarket. e.g. I am against having large plc. where natural monopolies exist they should be state owned (i.e. belonging to the people).
    a request to the clever people here and everywhere ..please think out of the box..bring a solution that is in the best interest, for us, the environment, and the world.




  • Comment number 89.

    31

    Have you got this post on a direct debit?

  • Comment number 90.

    #66. Supersage64 wrote:

    précis: "I can't be bothered to look at the post you recommend so I will re rant about 1.4tn 'must' include bailouts"

    For your benefit: Here is a copy of my post detailing how the 1.4 tn is created - IT DOES NOT INCLUDE BAILOUTS and is just the cumulative effects of reducing the deficit to half its present levels by the end of this parliament and NOTHING ELSE.

    Please do the sums (if you can't then cut and past the figures into a spreadsheet), before you make any more statements about the 1.4tn!

    [Reposting of my post #66 in previous blog.]

    Numbers (all £ Bn)

    Debt = 770

    deficits to reduce to 50% deficit in 5 years (a parliament)
    2010 = 156
    2011 = 136 [I have also seen 163bn this week]
    2012 = 116
    2013 = 97
    2014 = 78
    Total= 1353
    Today's government statement total = 1400

    Conclusions

    1. As interest payments are said to be 70 at the end of the period then they MUST be assuming interets rates of 5%

    2. The differance between 1400 and 1353 implies either rounding or more worryingly a failure to reduce the deficit as planned? [see 163 bn above] Or perhaps they have allowed for inflation and are working at current prices?

    All my analysis at constant 2010 prices.

  • Comment number 91.

    @80 DevilsintheDetail

    Ok - I thought Hubert's suggestion (@72) was that these funds would be used to avoid public expenditure cuts, but let's follow your train of thought for a moment. It's one thing for the BoE to create the money. That is a trivial accounting operation. But someone has to get it out there to those businesses and consumers that want to borrow. If the government were to take on this role too, you have a de facto nationalization of the banking industry.

    Governments are simply not good at running any sort of commercial activity. As far as banking is concerned, governments don't have the expertise to assess creditworthiness and risk. We can easily imagine that such microeconomic decisions would tend to come into the political arena. And why stop at banking? Should we turn other business sectors over to Whitehall too?

    I'm not saying the banks are especially good at what they do (and I'm glad Vince Cable has got them in his sights with a view to restructuring), but personally I think the government would be worse.

  • Comment number 92.

    34. At 7:57pm on 08 Jun 2010, Supersage64 wrote:
    Looks like bus passes for the aged will have to go too... How did Labour know this was going to happen. Why did Gordon deny saying this in his election pamphlet. Now he can't claim the credit for knowing better :-)

    When does the discussion move to revenue generation instead of cuts.Its easier to raise £50billion than to cut £6billion. Bring on the 90p tax for Financial Houses,Oil companies, Income above £250k,Inheritance, Capital gains... Problem solved. We all have to tighten our belts innit???.. including them fatcats??

    We will also not be spending another £85billion on bailouts so the opportunities to cut the budget deficit is massive.

    Come on Oscam.. Make it happen. And if you don't get invited to any more posh parties or get disowned by Ashcroft, don't fret.. Lefty parties are much more fun.. No cloaks and masks just mud, music and pints


    What tosh..New Labour were the epitome of snouts in the trough

    You cannot raise revenue easily when you have had 2 years of recession

  • Comment number 93.

    #81. HalfaWebsite wrote:

    "our problems have been caused largely by irresponsible bankers and the failure of politicians to adequately regulate them, yet the Coalition answer is to bash the victims of those failures, keep bank regulation weak and let the bankers off the hook, still free to indulge in their strange world of make-believe money"

    Fat Cats control the state!

    I agree with you short analysis of the cause of the problem. However as we effectively have no choice in politics where all parties are Tory and all support the money men the inevitable consequence is that the poor will suffer disproportionately. Did you not see that David Cameron wheeled out the cadaver of Margaret Thatcher onto the steps of 10 Downing street yesterday - that must tell you something about the new government - far more frightening than anything we have yet seen - bring back Gordon Brown NOW!

    Margaret Thatcher gave us the concept and reality of light regulation/no regulation and this is the fundamental philosophy that has caused the crash and her successors are back and getting the kiss of fealty! David Cameron must bury her!

    (Having said that I did warn exactly that this would happen if the Tories were elected.)

  • Comment number 94.

    81

    Nothing to do with Gordon Brown overspending significantly since 2002 then?

    I suggest you start doing some research

  • Comment number 95.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 96.

    83. At 09:38am on 09 Jun 2010, Neil Wilson wrote:

    "'Printed' if you like."

    Can you please give an example of when any country or civilization has been succsessful at funding itself from printed money?

  • Comment number 97.

    john_from_hendon

    @82 "What rubbish you write"

    Why don't you try demonstrating the falseness of someone else's argument, instead of resorting to internet abuse? It's more difficult, I know, but manners costs nothing.

    @86 I think you've missed my point. I do accept that the UK is in something of a financial mess. If they're going to put up VAT, I simply want them not to mess around with half percentage points. Oh, and I didn't say which way I voted.

  • Comment number 98.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 99.

    #80

    We already partially own money-creating banks. Why can't we fully nationalize RBS and LLoyds?

    I keep hearing we need to sell our shares in these banks (hopefully at a profit), but I don't understand why we can't keep them.

    Alistair Darling said he didn't want to run a bank, but it isn't up to him anymore. Maybe Vince Cable could have a go? Surely he can't be any worse than Hornby, Goodwin et al...?

  • Comment number 100.

    #86. At 09:44am on 09 Jun 2010, John_from_Hendon wrote:
    "#61. capncook wrote:

    "If the govt puts it up to 19.5%, I will lose the faith I had in them."

    This statement shows just how little understanding you have in the imperative of the financial mess we are in! If your 'faith' depends on 2% on VAT you are indeed shallow in thought and self-centred in outlook! Why on earth did you place your 'faith' in them in the first place? You were either willing to accept that the Tory party will only help it friends as they have done in the past or you should have voted otherwise - oh sorry you can't as we in fact have three Tory parties!"


    The first thing you've ever written I agree with.

 

Page 1 of 3

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.