The budget after next
Numbers have grown bigger in the last year or two.
It used to be the case that £10bn sounded like a lot of money. But after 18 months of banking crisis, we've all become confused.
Government borrowing was meant to be about £30bn, but will turn out closer to £150bn. The bank assets being underwritten by the taxpayer are £650bn. With numbers like these, (not to mention taxpayer exposure to bank liabilities running to trillions) why argue over the odd three or four billion? It seems to be worrying about the pennies when the pounds are evaporating.
Well, we at the Today programme thought it was a good idea to cut through the disorientation and ask what the long term effect of banking crisis plus recession has on the typical taxpayer. The answer is... £3.50 a day.
That number comes from the Institute for Fiscal Studies. We asked them for a "best guess" as to what the next parliament would have to do to reduce government borrowing under various reasonable assumptions about the economy, the recession and losses from banks.
There's no-one better to go to on this kind of issue than the IFS. Their independence is beyond doubt as all the main political parties recognise their expertise.
In essence, they think that 2.7% of national income has to be devoted to reducing government borrowing by 2016. That's in addition to the measures amounting to 2.6 % or so that Alistair Darling announced in the pre-budget report.
An overall fiscal tightening of about 5% of national income.
If you want to know what just the 2.7% of extra measures means - it is £1,250 per family per year in today's money, which you can divide by 365 to get £3.42 a day (which we round up to 3.50 to avoid spurious precision).
Now nobody really knows how bad things will be, so the results do depend on the assumptions you make. The full IFS thinking has been published, and you can find it here.
What is striking about the figures though, is that the assumptions the IFS makes about the cost of bank rescues and the hundreds of billions of pounds of recession-related government borrowing are less important in driving the results than one would think.
Those big incomprehensible numbers we have been hearing about are usually one-off numbers, and reduce to much smaller, comprehensible figures when translated into our annual tax payments.
Take an example for sake of simplicity. Assume we lose a plausible £100bn in our "investments" in Royal Bank of Scotland. What does that boil down to?
Well, fortunately we don't have to find that £100bn every day or even in one go; its effect is to push up the national debt. At five per cent interest rates, an extra £100bn of borrowing costs the state about £5bn a year to service or about £3 a week for the average family.
That is not to be sneezed at, as it is incurred year after year after year... but it is not life-changing, certainly not compared to a fiscal tightening in the next parliament of five per cent of national income.
The same argument applies to the costs of fiscal stimulus packages.
Suppose we spend another £20bn on a new package. Like a bank rescue, that is again a one-off cost. Again, it is modest in the context of the overall fiscal tightening needed in the next parliament, adding "only" £1bn to the total of about £40bn.
It turns out that two unpredictable factors are more important than bank losses and one-off borrowing in driving the IFS view of how much pain taxpayers will suffer.
One is the rate of interest on government debt. With a trillion pounds of debt, a one per cent difference is £10bn a year.
The other is how well the economy recovers in the long term.
If the economy bounces back to its old trajectory of income and growth, the long term effect of the recession is small. On the other hand, if the economy bounces back to a new trajectory where, say, we are all permanently six per cent poorer than we had thought we'd be before the crisis, the finances look terrible.
Alas, none of us know what the interest rate will be on government debt, or how much of the current economic decline will be reversed when recovery comes. The IFS projections are only as good as their assumptions. Things could be a lot worse or a lot better.
But the message is that when it comes to taxing and spending, it is the on-going performance of the economy in the long term that matters most.