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Walking the line

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Stephanie Flanders | 07:00 UK time, Thursday, 10 December 2009

It was never going to be easy. In his pre-Budget report the chancellor had to boost his government's standing with the electorate - without lowering it with international investors.

Alistair DarlingThe result was a speech which seemed to do a lot of things - but left the broad picture for the public finances remarkably unchanged. And remarkably bleak, even if the structural hole in Britain's budget is now slightly smaller than the Treasury thought.

For all the rhetoric about supporting the recovery, the chancellor is not planning to spend much more next year than he was at the time of the budget (see my earlier PBR blogs).

But he is spending more than previously forecast in both 2011 and 2012 - in total, nearly £15bn more. And he's using rosier deficit forecasts, and higher taxes on everyone earning more than £20,000 a year, to pay for that "protection" for frontline services.

Liam Byrne, the Chief Secretary to the Treasury, told Newsnight that 60% of the new taxes being raised would be paid by the top 5% of earners.

No 10 says that half of the revenues raised by the chancellor since last year's pre-Budget report have fallen on the top 2%.

You get the idea. But the National Insurance rise will not only be felt by the rich.

The question will be whether voters buy the idea that it's needed to protect those "core" public services, even though the "protection" only lasts two years (2011 and 2012), whereas the new tax revenues will run and run. As will the tight plans for the rest of public spending.

For their part, investors - and rating agencies - will look at the report and see a chancellor who is broadly meeting his deficit and borrowing forecasts.

But they will also see a chancellor who is not using an improvement in the underlying position - that roughly 1% of GDP fall in structural borrowing I discussed in early posts- to cut borrowing faster than before, as the likes of the IMF and Mervyn King have urged.

In fact, debt as a share of GDP is going to start falling one year later than before, though by recent standards the slippage is pretty small.

Alistair Darling is also planning to raise taxes, and increase spending, in years when the Treasury is expecting economic growth of 3.5%.

Come 2011, if the economy does look fairly strong, in the real world investors would be looking for the chancellor - any chancellor - to take advantage of that growth to speed the effort to cut borrowing.

He (I think we can assume it will be a he) might be punished in the bond markets if he failed to take that opportunity and stuck to these plans. In other words, the long-term cost of servicing the debt might well go up, as would borrowing costs for UK companies.

But investors and ratings agencies know that we are not living in the real world right now. We're living in the lead-up to a general election.

So far, they seem willing to wait to hear from the winners of that election before making a definitive judgment about the UK.

The Conservatives would rather the markets were less patient. If investors started openly to question Britain's credibility as a borrower, George Osborne might have more chance of persuading voters of the need to be more hard-nosed about the budget than Alistair Darling was this week.

But it's not as if the path sketched out by the chancellor was all sweetness and light.

In the end, the PBR tells us what we already knew: there really are no easy ways out from here.

Alistair Darling found that fine line to walk between the demands of the City, and those of his party. But he won't have left either of them very happy. Such are the options for a country borrowing more than 12% of national income this year - and next.


  • Comment number 1.

    Budget problems will be solved this way:

    The banks will be made to lower interest rates on loans while maintaining monthly repayment rates close to original amounts such that principal is repaid faster and that income tax can be raised.

  • Comment number 2.


    Does the proposed fiscal stability plan which will target the deficit reduction to 5% in legislation enhance Darling's credibility in the absence of details on his prospective cuts?

  • Comment number 3.

    ''And he's using rosier deficit forecasts, and higher taxes on everyone earning more than £20,000 a year, to pay for that "protection" for frontline services.''

    When not touching the mountain of debt and claiming sliding less fast into a further mountain range of debt is an achievement you have to find either the total lunacy or total gall of the man stunning.

    The objective could be interpreted as being to lose the next GE as it is lost already, leave whoever is in to clean up the mess, then trumpet look what they have done in the GE after. The real cuts come when the debt has to be dealt with. This is a very moderate squeeze on the public sector. There is no 'protection' it is rhubarb. Everybody is being asked to sip from a poisioned chalice.

    Pass the rose tinted glass, anybody for a chancellors tipple.

  • Comment number 4.

    The election cannot come too soon to permit the people to express their view on these matters.

  • Comment number 5.

    Why do we have to wait till May for an election? What magical thing is going to happen to the economy in the next 5-6 months? Meanwhile our economy is going to need to borrow around £85 billion pounds in a hiatus period whilst not addressing the underlying fundementals in the way the Irish Government have addressed them. Whether we like it or not, we will have to have a large measure of pain to address our debts! Darling, inevitably, has ducked the issue and is dithering while the UK burns.

  • Comment number 6.

    Bloomberg report that the Govt is considering selling some of the corporate bonds it has purchased through QE to improve liquidity. Does anyone know what happens to money they get for those bonds ?

  • Comment number 7.

    Do me a favour, 3.5% growth in 2011, no chance! And the budget deficit forecast is based on this assumption, madness when the Chancellor by his own admission has suggested that by this time a squeeze will be put on the economy. The truth is that by 2011, we will be £700billion in debt which will cost £44billion in interest payments alone. Bearing in mind that the whole Education budget is £49billion, how can we afford it? But of course, Darling is not going to address this whilst the economy is being eased towards recovery, something to do with an election perhaps? Lions led by donkeys - again.

  • Comment number 8.

    Yes, Stephanie, there is no EASY way out. But we do NEED a way OUT. This PBR blatantly does not offer us one. When the deficit is 12% of GNP and the capacity of the economy to pay much more in tax is clearly zilch, we need an axe swinging in Whitehall.

    The bottom line is that we are being over governed. Cut trhe impact of government on our lives and the deficit is blown away.

    Have you noticed that Darling has refused to go down this line? To do so would be to go against one of the cardinal principles of Socialism - that the Government knows better than its citizens,

  • Comment number 9.

    I wanted to rant & rage in this comment but I'm so flabbergasted that I couldn't find any suitable words.... except to wonder what else could we possibly expect from a 'socialist' government. It needs a new definition, we could start with "rip off everyone".

  • Comment number 10.

    A very clever pre budget speech - which leaves the tories and the inept lib/dems spluttering with indignation -

    The Chancellor has in effect raised taxes on the highest paid in society with the moderately paid sharing a smaller burden.

    The tories are now stuck with their "savage cuts" policy without telling us where the cuts will come and without telling us how they will pay for increased unemployment.

  • Comment number 11.

    The first thing that springs to mind is "Rabbits and Headlights"
    This inept administration havent a clue and if they are not out of Government soon, very soon, there will be nothing left to salvage.
    Where to start !!!!!!! By the simple method "STOP" stop new costly rules, stop NOW every quango and consultant, stop NOW any new recruitment. stop NOW and new tax rules and NI fudges (just another tax) and ask why a department like the MOD needs 80.000 staff ? What the hell do they all do ? Stop now ALL benefits to incomers who have never paid any tax. stop NOW the excessive rent payments by ALL councils. We need a serious period of consolidation and get right what we have. Fiddle while Britain collapses is the Brown and Darling plan ! BUT have the Conservatives any better ideas ??? We dont seem to have any politicians are are in it for Britain and not for their own self importance and glory.

  • Comment number 12.


    '...without lowering it with international investors.'

    What is the demand for UK debt outisde of QE?

    Can we sell another ~£170Billion worth of guilts next year? And the year after that?

    What happens if we can't? Trip to the IMF? Have they got that much cash?

    I don't know the answer, can anyone help?

  • Comment number 13.

    As long as there is an annual deficit, the national debt will keep increasing. Put simply: as long as you keep borrowing money, your indebtedness will keep going up.

    To draw attention away from Britain's increasing national debt, and paint a positive spin of the situation, the following 'truths' must be repeated:
    (i) The deficit will be reduced, year on year
    (ii) The national debt as a percentage of GDP will fall

    This makes it sound like it's fine to keep spending more than you earn for years to come.

    However, there are problems with spending more than you earn, including:
    (i) Eventually you will have to pay back what you have borrowed, which means you will have to reduce spending in the future;
    (ii) Large indebtedness means you are vulnerable if interest rates go up. If rates go up then the cost of servicing your debt will increase, which means you will have to reduce spending;
    (iii) You can only keep spending for as long as you can continue to borrow money. If you can't renew your exisiting borrowings, you will be bankrupt;
    (iv) If the economy is hit by a further random shock or black swan event in the coming years, the government will not be able to fund new bail outs, as it has already borrowed to the maximum.

  • Comment number 14.

    There is another issue. Mr Darling seems to be signalling that the current low interest rates paid on savings will continue. Many people (myself included) are planning to rein in our spending as we have no income from our savings. I doubt the growth figures therefore as a lot of people will be in that position.

  • Comment number 15.

    It's actually easy, in principle at least, to get out of the mess.

    When a household is up to its eyeballs in debt the first thing to do is stop spending.

    At a government level it's not practical to simply stop spending completely but we can take a long hard look at just what we're spending. Like a household we can categorise expenditure as necessary, unnecessary, and subject to cutting back.

    Our government and public sector has grown so large and bloated it can easily be cut back. We don't need 5-a-day outreach coordinates, diversity awareness managers and their ilk in every council up and down the land. We don't need councils to be hiring people "to ensure council services are accessible to minority groups" - they can put their bins out just like the rest of us do.

    We don't want to be savaging the NHS but we can return to its core values. We don't need one manager per bed, we need fewer managers and more nurses. Nurses are cheaper than managers so we save money. We can refocus on essential treatments rather than elective treatments - chemotherapy for cancer patients is essential while plastic surgery is not (although I'd make an exception for reconstruction after an attack or accident)

    A civilised society needs some form of benefits system for those who genuinely cannot support themselves, but we don't need (nor can we afford) to support vast numbers of people who simply choose not to work. The benefits budget is enough to pay £60/week to every man, woman and child in the country. This is clearly ridiculous - it means the average family of four is effectively paying £1000/month to fund other peoples' benefits. So slash benefits to those who are clearly looking for work or demonstrably incapable of working.

    One way it's easy to get the ball rolling is very simple. Come the election, put your X in a box that doesn't say Labour beside it.

  • Comment number 16.

    Wasn't this all a bit of a Potemkin PBR? Nobody can believe that the next Govt - Labour or Tory - is going to follow these plans. The City doesn't believe it - they're waiting until after the election to reach their verdict because they know that the next Govt will have to attack the deficit more sharply than Darling said yesterday. And yes that means taxes up (VAT for a start) and spending cut in 2010/11 rather than in 2011/12 - whoever gets in.

    It was cynical of Darling to pretend otherwise and naive of everyone else to believe him.

  • Comment number 17.

    Worried about the growing debt - lie back and think of Ireland! Of course you cannot expect frankness months before a general election but one would hope there would not be stupidity as manifest in the upgrading benefits only to down grade the following year. The valid approach is to close off serious expansion in spending and general taxation (allowing VAT back to seventeen and a half percent is a mistake)but not to get obsessed with the balance sheet mentality which will prolong and possibly deepen the recession. The government deserve only 6/10.

  • Comment number 18.

    None of the commentators seem to want to address the exceedingly important issues of the fundamentals of the economy.

    1. The present equity and property price bubbles - directly resulting from zero or negative real interest rates.

    2. The critical need to improve the savings ratio when there is still a negative incentive to save.

    These are the unspoken issues that got us into this appalling situation and it seems to me that all policies are only directed to re-inflating the price bubble that caused the crash - insane (And why is the architect of this economic insanity, Mervyn King, still in post????)

  • Comment number 19.

    The increasing ineptitude of this government is starting to get scary. They're reactive media-driven megalomaniacs with seemingly no grasp of basic macro-economics. Please let us get rid of them sooner than May!!!

  • Comment number 20.

    How much of the Governments calculations are based on abnormally low interest rates? What would the interest on the debt look like in the future when they are back up at normal levels?

  • Comment number 21.

    Given that there will be an election in 2010 and that there is a real possibility that Alistair Darling will not be Chancellor after ir, it looks like a real no-brainer to defer the tough choices to 2011!

    It's known as "somebody else's problem"!

  • Comment number 22.

    #17, fiddling with the benefits is probably a purely political move. When the next government (almost certainly a Conservative government) does the sensible thing and takes away the most recent benefits increase the Labour opposition can howl and point fingers, claiming the Conservatives target the vulnerable. And the sad thing is the dozens of people who still think Labour has a clue how to run an economy will believe them.

    Trouble is government is very bad at cutting costs, especially when most of the costs relate to Labour voters. And when it comes to raising revenue it can come from three possible places. The rich, who are mobile and can move their corporate structures offshore with a stroke of a pen. The poor, who have nothing to give. Or those in the middle, the likes of you and I, who are increasingly soaked to pay for everybody else.

  • Comment number 23.

    #20. skynine wrote:

    "How much of the Governments calculations are based on abnormally low interest rates? What would the interest on the debt look like in the future when they are back up at normal levels?"

    Quite right, the figures assume (so far as I can see) no increase from zero interest rates in the whole of the forecast period (to 2018?) This is insanity and a recipe for total economic collapse. Our politicians are idiots, as are our regualtors (fire Mervyn King)!

    We MUST get interest rates up to the 5 to 6 percent range if we are ever to come out of this disastrous slump. (On the other hand, as I have been saying for months, the crash appears structurally similar to the slump of the 1870's, the Long Depression that lasted 23 years in this country (from 1873 to 1896) so perhaps I should not be surprised!)

    We need a National Government that can take the very unpleasant decisions and policy changes required to get us out of this disastrous situation.

  • Comment number 24.

    Today B.Obama gets the Nobel prize for peace. Yesterday A.Darling got the Noballs prize for economics.

  • Comment number 25.

    We have recently bought two houses in the UK. Why? Because we do not live in the UK, Sterling is down, we have savings in Euros, and we know that more British people will be renting.

    This is why in some areas some houses are being sold in the UK.

  • Comment number 26.

    Oh dear.
    I suspect a few in this blog are unaware that in the early 90s
    bank rates were 15% and even went to 17,5% for a day.

    Labour do deserve some credit for taking interest rates away from

    All these doom mongers who think that they can predict the
    price of a cup of coffee in 2017 could not In 2008 predict
    the crash.

  • Comment number 27.

    The current budget would be recognisable in Brazil, Argentina, Chile and all the other South American countries saddled with unfair debt by the international banking system since 1945.

    The existing crisis has begun a process of a net transfer of wealth from the public to the banking sector. The same kind of raging indebtedness that led to the collapse of democratic changes right across the third world.

    The rational, businesslike thing to do is to assess exactly how much debt the banks created with their failures. Then to ask them how they intend to pay the taxpayer and government back for supporting them durint their difficult transition to a fairer, more equitable business model.

    Announcing a PSBR of anything over previous predictions is a measure of just how much impact Banking has had and how much Banking and other Financial Services needs to repay. They wish to be taken seriously and treated as an important part of the global economy, then they need to start asking exactly how high to jump.

    The Banks owe us, the Taxpayer. Expectations of public sector cuts or of economic discipline are ludicrous nostalgia. The Banking Crisis has a unique opportunity for Public Spending: reforming banking as a utility that supports the long term and publically directed stability of the economy. The alternative is to allow the Banks to force UK plc into the kind of cycles of indebtedness that destroyed economic development in Brazil for decades.

    We can all take pot-shots at Darling. Pretty difficult to miss. In doing so, people are missing where the ideology of economics is forcing us. We, the collective non financial-services sector, continue to deserve reward while the banking sector is failing to provide the liquidity of that reward. It is a debt to society that they really need to start acknowledging rather than expecting everybody to pick up the tab by loss of goods, services and rewards that we have all worked - and continue to work - for.

  • Comment number 28.

    15, Aaaaardvark, I think you've got it pretty much spot on.

    I don't think the company has the capacity to pay much more tax. Those at the bottom certainly can't and if even a small proportion of those on higher income decide to leave we could be in real trouble (these people are huge net beneficiaries of the state).

    So we must look to cut savings. The suggestions in 15 are sensible but I think people haven't quite realised how far we have to go to get near to a balanced budget. We may need to accept that we can't afford an NHS that pays for all kinds of life-prolonging treatments or an education system that subsidises joke degrees.

    One final suggestion, I have never been wildly opposed to the Afgan War but that now seems like an obvious area in which to make savings (by scaling down operations, not by not equiping soldiers)

  • Comment number 29.

    A country gets the politicians they deserve.Unfortunately when any politician says what needs to be said it is spun against them,by the opposition,the media etc,nobody is thinking of ENGLAND.This will be resolved in typical British fashion ,we will reach the abyss,look at each other ,blame a different class and have 10 years of painful social and econimc chemo;remember the early 80's?.

  • Comment number 30.

    #12 DrG

    The net financing requirement for 09/10 requires the Government to sell £225 billions gilts. Evan Davis asked Morgan Stanley your question this am. The answer is that the Government have instructed banks to buy gilts to improve their capital quality. Hey presto ! A ready-made home market for gilts. What wasnt explained was that the banks will charge us the cost of holding this risk-resistant gilt-capital. This is in addition to our taxes being increased to pay the debt interest to the banks for holding the gilts. Hey presto again, the banks make an enormous profit. The bonus tax was small beer........when the BoE sell their recently acquired £200 billions of gilts, the investment boys in the banks will cream off some more..........that's capitalism, cheers everyone!

  • Comment number 31.

    #30, I heard that interview, and it seems the answer to who will lend us the money to run the country, the answer is; we will print it ourselves. Just wait for the tumbling pound, all will become clearer then.

  • Comment number 32.

    Darling is clearly not only expecting to be out office shortly, he must be actually banking on it.

    How he must be hoping that the Tories will soon inherit the mess he and Brown have created, rather than having to deal with it himself.

  • Comment number 33.

    There is an easy way out of this quandary and that is to get on with the job of reducing the debt and apply a spending formula to every penny of government spending to make sure that not a single penny is wasted.

    I have said this and similar previously - if the national income is reviewed there is plenty of cash in the UK economy to do most things and more and start paying off the national debt in significant amounts - the government will not admit this and get on with the job.

    Briatin is at war and emergency measures need to be put in place to give us the fortress Britain mentality - to pull together, do the right things instead of sleasing towards the next general election with spin and lies.

    A spending formula means very penny spent has to comply with target criteria e.g does the spending:

    1) produce direct benfit to the British taxpayer
    2) significantly help reduce unemployment
    3) have a significant economic sustainability element
    4) have a significant benefit towards a UK sustainable low carbon economy
    5) benefit UK fuel self efficiency
    6) apply the national identity card system to banking and taxation and for access to public services and benefits
    7) everyone 'buy British' or not at all - everyone!

    If a simple test like this is spent towards all government spending about 50% of government spending would be eliminated and the budget would be paid off.

    I watch the news, read the newspapers and read the political and economic blogs with increasing increduility - the waste and unfair taxes are everywhere.

    A similar set of criteria could be applied to all UK taxes to see if they are fit for purpose:

    1) tax those most who are non-domiciled
    2) penalise those who are in tax arrears
    3) chase the £8 billion owed by tax cheats and dodgers
    4) tax those most who send money overseas
    5) tax high cash and gold amount accounts - encourage investment in things and projects other than hoarding cash stores
    6) reduce the tax burden on the low paid and middle income as these are
    the people who can spend in the UK rather than sending money overseas.

    This (or a similar amended version) would right the UK economy inside two years and all British citizens would be better off - this is better than ring fencing certain services as is too complicated, take years too long and will never get agreed.

    A straight forward and workable two year plan to right the UK economy - you read it here!

    Go on Gordon (David/Nick), rather)! Get on with it and stop dithering!

    If anyone thinks that they have a better plan I would be interested to know.

    The key is to reduce taxes on those ordinary taxpayers who will spend their money in the UK and not send the money overseas and tax heavily those in the UK who damage the ordinary UK taxpayer. e.g. non doms. illegal immigrants, criminals, bent politicians and bankers. If this is coupled with stringnet government spending efficiency - the UK economy would bounce back strongly within two years - otherwise stagnation for ten+ years.

    You read it here!

  • Comment number 34.

    I am fed up with the lies from ministers. Again this morning I heard A. Darling talking of how they will be getting borrowing down from 2011.

    In this country we speak English. In english, if you are getting borrowing down, this means you are borrowing less. It means my overdraft is going down, it means my credit card balance is going down.

    But only this crazy government can increase our debt to an estimated £1.5 trillion over the next 5-6 years, while getting our borrowing down.

    Yes of course its because they talk about the deficit and not the actual total debt. Just a smoke screen to cover the numbers that blow you brain when you think about them.

    Did A. Darling mention in his speech yesterday that we will get back to G. Brown's oft quoted fiscal rule of 40% of GDP borrowing levels in approximately 30 years!

    30 years... the rest of my working life (assuming I'll be working into my 70's). This government has made mistakes that I'll now pay for the rest of my life.

  • Comment number 35.

    The chancellor did not hand out free money to the banks. I don't understand why the chancellor is not showing the complete balance sheet.
    Where are the returns from the 'investments' in the banks i.e. payments by the banks on the insurances or the equity returns in RBS, LLyods and others?
    I cannnot believe that the Treasury 'lost' £140 billion!! and the taxpayer has to pay through tax rises!!

  • Comment number 36.

    And this government lectures its citizens on the evils of debt?

    No mention of the blatant mismanagement of books: allowances up for one year but down next (hidden in the accounts). Sounds like 10% tax rate again. If these guys were running a real business .....

  • Comment number 37.

    Dear me, a history lesson is needed on this site. In the early 90s we had a tory inflicted recession (not suffered throughout the world economy). What was the tory response then? Base rate of 17.5%. The tories were wrong then and in earlier self inflicted tory recessions.

    Darling has simply used the pre budget speech to highlight the differences between the various political parties. Hence the spluttering from the tories and lib/dems who are on the defensive having to explain their "policies"

    The armchair economists who simply say cut the public sector fail to tell us how we make up for lost tax revenues and how they would pay for increased unemployment. Also they cannot agree on what should be cut - the NHS - Armed Services - perhaps because they have not thought broadly enough about the consquences

  • Comment number 38.

    When are all these politicians going to stop insulting our intelligence by continuing to play politics when substantial measures to sort out the economy are required NOW ? Caledonian Comment

  • Comment number 39.

    How did we get to where we are?

    With an economic model that has value as an objective basis we can see:

    Finance capital struggled to find productive returns on capital and via sub-prime mortgages, etc. fuelled an asset boom to maintain the true decline in the productive rate of profit.

    The debt-laden consumers eventually could take no more debt (or at least the banks realised they might not get their money back from many of the loans they made and stopped lending to one another, i.e. credit crunch).

    The asset-bubble popped, house prices and stockmarkets fell.

    The banking (capitalist) system had to be rescued. (Again, the Labour party demonstrated that they are not socialists). Billions of pound of taxpayers money (between £40-60k per household, depending upon how calculated) handed over to the rich, greedy bankers to prevent the capitalists from losing their money.

    The rescue has resulted in a massive increase in governement debt unseen in peacetime. Current fiscal deficits are unsustainable.

    But the government stimulus has saved the system for the time-being. Another asset boom is bubbling away.

    Unfortunately for those in power, the bankers have returned to their old greedy ways, making it quite hard to hit the ordinary worker when its self-evident that the rich are living their usual life of luxury this Christmas. How may children will have a basic Christmas because parents don't have work, or if they do they can barely keep the roof over their head and food on the table.

    The inequality, the injustice is so very, very obvious.

    Control of the media by the rich ensures that alternatives such as socialism are either not given any attention, or are distorted. The message goes out that there is no alternative.

    But why should a few control all the wealth are the rest of us sell our labour just to survive?
    Why is production based upon the rate of profit, i.e. the return the rich get on their capital?
    Why should we have such inequality and such destruction of the natural world?

    It's the economics of the madhouse.

    Why not the democratic control of the production process?
    Why not the collective freedom of humanity in place of the prison of debt and poverty?

    The French revolutionary cry of liberty, equality and fraternity is still very much needed today.

  • Comment number 40.

    "The armchair economists who simply say cut the public sector fail to tell us how we make up for lost tax revenues and how they would pay for increased unemployment."

    You dont lose tax revenues by cutting the public sector; tax from a nurse with a 20k income is clearly less than the 20k we pay, for example (unless he/she is living on nothing, which I doubt). Equally, if he/she is made redundant and starts to claim benefits, that costs less than keeping him/her in a job.

    Now, I'm not advocating firing nurses en masse, but let's get the facts straight on that point.

    There is no easy way out, and anyone who thinks there is needs to think about the fact that we are currently spending four pounds for every three raised through tax. Its a huge huge overspend. Necessary for now, I believe, but that does not make it any smaller.

    Income tax, VAT and NI make up over 60% of tax revenue. Common sense says these will all have to rise to significantly increase overall taxes, probably by around 10% (and by more than 50% income tax for high earners).

    Similarly the NHS, education and welfare spending are together around 60% of spending (or to put it another way, together with debt interest that's very close to our total tax revenue at current; most other expenditure is being borrowed). To make a significant spending cut of around 10%, you have to cut these, and debt interest is actually going to rise.

    It seems to both cut spending by 10% and raise tax by 10% to fill the 'black hole'. You can quibble about my exact figures, but make no mistake; that is the order of magnitude of the change required.

    When the people come out of denial, perhaps our politicians will.

  • Comment number 41.


    You wrote ...

    "In fact, debt as a share of GDP is going to start falling one year later than before,"

    Really? So could you tell us when debt is expected to fall as a share of GDP? And how we are supposed to get there?

    As I understand it, the current plan is for the deficit to halve in four years time - at which point it will be just over 6% of GDP - so debt will still be rising far faster than GDP. If the then government goes on to further cut spending or raise taxes by 1% of GDP each year (ie about £15 billion worth) for four consecutive years, they will reach the point where the debt becomes approximately constant relative to GDP if GDP growth returns to its long term trend of 2%. At that point total debt would be around 110% of GDP and they would then have to cut spending or raise taxes even further in order to have debt fall relative to GDP.

    So we are 8-10 years (at best) of relentless spending cuts and relentless tax rises away from the point where the debt "falls" relative to GDP - meaning that it rises, but more slowly than the economy (we hope) will be growing.

    As things stand I don't believe that there is any realistic possibility of us reaching that point in any foreseeable future. The deficit will no doubt fall, but the accumulated debt is, and will remain, permanent.

  • Comment number 42.

    37 Decentjohn

    Those of us who create the real wealth for UK plc constantly have the argument about public sector workers contributing through tax thrown back at us whenever anyone mentions cutting the massivley bloated sector. Understand that the headline cost of employment has to be created from NON public sector tax BEFORE they contribute. For example:

    Cost of employing public sector worker on 30k salary, add on c 33% for additional benefits (pension costs etc) and employers NI, total cost c £43,840. Tax take to UK plc is income tax, EE's NI and ERs NI totalling c £11,215.

    Net cost to the country, borne totally by the non public sector, c £32,625.

    Get rid of this 'outreach worker', at best they will get a job in the real economy and start contributing to the pot, worst case, unemployed with a cost to the non public sector tax payer of considerably less than the 32k figure above!!

    Get real public sector employees. You moan about a wage freeze. A very significant number of people (my staff included) have had to endure a pay cut.


  • Comment number 43.

    20. At 09:44am on 10 Dec 2009, skynine wrote:
    How much of the Governments calculations are based on abnormally low interest rates? What would the interest on the debt look like in the future when they are back up at normal levels?


    Britains £40billion trade deficit partly financed the purchase of British gilts by foreigners with a sterling surplus, at some point in the knot too distant future they will twig what is going on and seek new markets , at which point imports will become prohibibibititively expencive and declining .. leaving government no option but to Monet ize governmint debt with the ole in the middle for suckers ofAAArt .Ali D's government borrowing projections reflect this reality of being unable to finance debt , rather than a serious intension by gov to get expenditure under control.


    What part of "we're plucked" do well insulated chicken little voters with an untrammelled wishbone.. not understand .

    The best investments are cans of sardines, old shoes[the shoe scrappage scheme is coming], copper and lead ingots and old sony trinitrons

  • Comment number 44.

    #5: "Why do we have to wait till May for an election? What magical thing is going to happen to the economy in the next 5-6 months?"

    It gives our corrupt, guarenteed to be dropped, leaders a chance to graft more dirty money and influence into their personal accounts...

  • Comment number 45.

    Laburzzz thurd way is the charging bollaaard that adorns the fork in their road to high votage ruin

    The voterrs shaken but not stirred must decide wether the moment of blitzzz will be worth the subsequaint eternity of bondage

  • Comment number 46.

    12. DrG:

    ".........What is the demand for UK debt outisde of QE?

    Can we sell another ~£170Billion worth of guilts next year? And the year after that?

    What happens if we can't? Trip to the IMF? Have they got that much cash?

    I don't know the answer, can anyone help?"

    Good points.

    There's very little demand for UK government debt outside QE. After all, who would want to lend to a flaky borrower, in a flaky currency, at a low rate of interest?

    This year, government needs to raise about £220bn of new debt. QE will total a rather similar number - £200bn - which doesn't strike me as a coincidence. The presence of QE boosts gilts prices and therefore reduces the cost of borrowing. So it's a neat short-term expedient. But, if it isn't curtailed pretty soon, it will push sterling down and interest rates up.

    No, the IMF hasn't got that kind of cash readily to hand. But the benefit of going to the IMF would be that, in return for a bail-out, the IMF would demand action, probably along the lines of Ireland's budget.

  • Comment number 47.


    Many thanks for your calm analysis of the PBR.

    The market assessment of the Report is/will be reflected in the change in yields on government debt. So far yields have only increased slightly. So markets either regard the statement as OK or are deferring a decision until after the election, expecting the real budget to come then (from whichever party/parties is/are in power).

  • Comment number 48.

    It does seem pretty obvious that Alistair is hedging his bets because he is unconvinced that he will still be chancellor in six months time. That isn't a very good position to run a country from is it?

    But you can't blame Alistair. He took a poison chalice from Gordon, and Gordon took his from Tony.

    the UK public sector is a disaster, notwithstanding the many admirable people who toil within its excessively heirarchical and secretive set up.

    Gordon Brown is the paradigm of the generation of people he has engendered. The live-now pay-later generation. Trouble is, he won't be doing the paying. Quite how a man who has got so much wrong retains any credibility at all is beyond me.

  • Comment number 49.


    Very well put.

    I would add a further distinction here - the aim should surely be to cut public SPENDING rather than public services as such.

    One of the distressing features of the last two decades is that the cost of delivering public services has escalated. I've read that management now absorbs 22% of the NHS budget, up from just 6% in 1988. I don't know how far that holds true across the public sector as a whole, but I suspect that it's probably a pretty accurate proxy. Look at the ratio between service and civilian personnel at the MoD and you'll see another example of over-management.

    I suspect that over-management (including the use of 'consultants') is rife across most of the public sector.

    If so, the obvious aim should be to reduce excess management, thereby finding cuts in our bloated public SPENDING whilst minimising the damage to public SERVICES.

  • Comment number 50.

    # 49 - I agree with your comments. One point that the politicians don't seem to be making is that it is not just that increased public debt acts as a drag on recovery as it pushes taxes up, but a bloated public sector also makes it more difficult for the private sector to attract staff. Now, I know that pay limit for public sector workers which has been announced may change this to some extent, but there is still an issue in some parts of the country (including Scotland here I live) with private business not being able to match the salary and benefits which are provided to some public sector workers including many of the consultants and managers mentioned in your post.

    I'm sure we all want to have an effective and efficient public sector with well rewarded workers but we can't lose sight of the fact that the wealth to pay for this has to be generated by the private sector.

  • Comment number 51.

    There still seems to be a lack of clarity over what Darling is actually planning for public spending for 2011-12 and 2012-13.

    The IFS and Stephanie say he is planning to spend £15bn more over those two years than he proposed at the time of the Budget, and this is indeed what Table B4 in Annex B of the Red Book appears to show - additions to current spending of £7.7bn in 2011-12 and £6.9bn in 2012-13 (totalling £14.6bn).

    This also tallies with the rhetoric of ring-fencing spending, protecting 'front-line' services, etc...

    However, Table B13 sets out the current and capital budgets and gives figures for current spending, net investment and depreciation, which added together should give us Total Managed Expenditure. (Odd that the Treasury doesn't publish TME figures beyond 2010-11 and we have to calculate them...)

    These figures give us TME of £627.8bn for 2008-09, £675.7bn for 2009-10, £706.6bn for 2010-11, £716bn for 2011-12, £734bn for 2012-13, £752bn for 2013-14 and £776bn for 2014-15.

    At the time of the Budget the totals were £620.7bn for 2008-09, £671.4bn for 2009-10, £701.7bn for 2010-11, £717bn for 2011-12, £738bn for 2012-13 and £758bn for 2013-14 (no figure for 2014-15).

    On that basis spending will be higher than planned at the time of the Budget until the end of the next financial year, but fractionally lower (in nominal terms) thereafter: by £1bn in 2011-12, £4bn in 2012-13 and £6bn in 2013-14.

    Nor is there any evidence in this table of the additions to current spending, which is forecast to be £666bn in 2011-12 (unchanged from the Budget projection), £686bn in 2012-13 (£3bn lower than the Budget projection) and £707bn in 2013-14 (£5bn lower than the Budget projection).

    Net capital spending is unchanged from 2011-12 onwards, so the small reduction in TME is coming from lower current spending and lower depreciation compared to the Budget forecast. And yet the other table shows higher current spending... They can't both be right, surely?

    Also, Darling talked about real terms current spending rising by 0.8% per year on average from 2011-12 to 2014-15, compared to 0.7% for 2011-12 to 2013-14 at the time of the Budget - a very small difference that might be explained simply by a slightly lower inflation forecast (although I haven't checked this) or by the four-year instead of three-year horizon.

    Whereas if he is adding £14.6bn of current spending over the period you might expect a bigger upward revision in the average annual % rise than 0.1%...?

    All very perplexing. Can you shed any light Stephanie?

  • Comment number 52.

    #37 Decentjohn. Delusion does not equate to decency.

    There is no difference between the political parties - they have all been captured by financial oligarchs. For you to think that there are differences merely does the work of the captured mass media for them.

    Who cares about public services? You have no money you have to live as you can. Don´t you know that in this world we allow people to starve simply because they have no money? Why should you be treated any differently?

    Who cares about consequences? They will be what they are.

    The time for caring has passed. You shouild have cared when you stood idly by and watched the greatest sequestration of wealth in the history of the world. That you did nothing to prevent this massive act of theft has conequences - consequences that we will all be forced to live with or a very long time.

    No-one is coming to save you, and the sooner you understand that then the sooner you can sensibly prepare to survive the full spectrum meltdown that is now unstoppable. A major reason that it is unstoppable is because people like you have so comprehensively confused decency with delusion.

  • Comment number 53.

    Following from your last blog, govt predicts that the structural deficit will be 3.6% of GDP.

    Now given then trend growth in UK GDP is somewhere between 2.25% and 3% pa what the govt is saying is that the structural deficit (ie the amount which we would be in deficit by even in good times) is bigger than trend GDP growth.

    So Lab policy is that even when we get out of the current hole we will continue to spend money we do not have, beyond our ability to pay, on "core" activities so that come the next recession we will have even less ability to take the necessary measures.

    Total and utter madness, I cannot even call it negligence for it is far beyond that.

    Given where we have got to any party which proposes a structural budget deficit of more than trend GDP growth is not fit to govern.

  • Comment number 54.

    After watching various interviews on the BBC, explannations, excuses, analysis, promises etc. I'm left with one thought. The Chancellor doesn't want to be in this job anymore. I don't think he cares if the Labour Party win or not at the next general election.
    For me it's a case of:
    "I'm a Chancellor.....get me out of here!"

  • Comment number 55.

    They are paralised by indecision; hence the fiddling with Bingo tax cut when we needed strong and clear leadership with future investments for renewable energy and high tech manufacturing - They are spending less on Innovation etc than wasted, rushed and ill-conceived 400 Million on car scrappage.

  • Comment number 56.

    #15 Ardvaaaark. It is not that easy. There are plenty of people who cannot support themselves. You can call them lazy if it makes you feel better, but whatever you call them they cannot support themselves. They have been given enough money to watch satellite TV, eat junk food, drink copious amounts of alcohol and smoke industrial amounts of marijuana. The idea is it keeps them quiet.

    Take these props away and the likelihood is they will be around your houe looking for food and money. There are a lot of them - too many for you to defend yourself against.

    It would have been better to consider the consequences before you decided to offer your tacit support for the creation of an underclass that are now several million strong and getting bigger (both individually and collectively) by the day.

  • Comment number 57.

    #25 Oblivion - Maybe you have made your move too soon!!

  • Comment number 58.

    I am one of those who put money aside for a rainy day. I am now unemployed so the rainy day has arrived. I am living on my own money. This simple set of rules should have been applied by the Labour government of the last 10 years. Instead they just spent (by the way they were spending our money). Whatever happens to the economy, Labour do not deserve to be ruling this country again, ever. They can't be trusted with our money.

    The sooner they go the better, so that the Conservatives can speak openly about the real cuts that have to be made to get Britain into fiscal probity. A couple of years ago the Conservatives spoke about the need to cut £20bn from that year's budget. Jack Straw said something on the lines of where would it come from, all the expenditure was essential. That is the meantality of the Labour party, and they need to be kicked out so that people willing to make real cuts are given the opportunity to save this country.

    Growth in 2011? Don't make me laugh.

  • Comment number 59.

    37# DecentJohn - "The armchair economists who simply say cut the public sector fail to tell us how we make up for lost tax revenues and how they would pay for increased unemployment".

    Speaking as an armchair economist, i'll tell you how you make up for lost tax and increased unemployment benifit:

    You cut the public sector some more.

    When you have completely maxed out on this option,such that its cut back to the absolute minimum then you make up the continuing shortfall by printing.

    Maybe then you would at least have a slim chance of avoiding hyper-inflation.

  • Comment number 60.

    5. At 08:38am on 10 Dec 2009, dontmakeawave wrote:

    "Why do we have to wait till May for an election?"

    Answer: Because the extra four months are worth a lot of money to MPs desperate to build up their savings and continue to collect their expenses to the bitter end. Don't forget that many of them are going to retire to obscurity, and need a nest-egg.

    In addition, if the government waits a bit longer the problems in the economy will have time to fester and make the incoming government look bad in a year's time.

    Plus Gordon Brown could probably find a few more excuses for calling some sort of international summit to make himself feel important. He's fixed the World Economy and Swine Flu and has nearly sorted out MMGW. He still has four months, so he could hold a round-table to win in Afghanistan (as he did in Iraq). That should leave a month or two to sideline that failure Tony Blair and settle the Arab/Isreal conflict around another table. I think Iran will take a bit longer - although with Gordon's skills, maybe they could be dealt with at the same time as Israel/West Bank.

  • Comment number 61.

    Number 56.

    Worrying isn't it? We have to pay protection money to live a quiet life in Britain.

  • Comment number 62.

    Here is a simple proposal for politicians.

    The Treasury is given instructions to implement a plan to reduce the government's debt to zero in 25 years. They are then made independent of Parliament. Any government not adhering to the plan will be dissolved by the Treasury, and a general election called. Whilst this process is in action, no goverment expenditure is allowed, whilst government revenue is collected and passed to the Treasury for them to pay off the debt.

    Parliament losses it's financial powers, because it shows it can't be trusted with them.

  • Comment number 63.

    Labour party - latest initiative is a full length feature film called ... 'Carry on Spending' (Overseas).


    Gordon Brown, MP as 'Goondog Trillionaire'

    The obnoxious, obfustacating Ed Balls as the obnoxious obfustacting Ed Balls.

    Phil Woolas as 'Danger Mouse'.

    Alun Johnson as 'the sleeper'

    Alas! Darling as the confused, cowardly Chancellor.

    Liam Byrne as the 'Blinking lying Treasury official'.

    Smithy Jacques and Payta Mandollsoon as the 'sleaze team'.

    At a cinema near you soon (all proceeds to go to the Retired Banking Executives and Dictators Charitable Apology Foundation - Part 2, XXXXXXXXXXX Schedule 3 XXXXXXXXXXXXXXXXXXXXXX (XXXXXX = redacted)

  • Comment number 64.

    It's all so uncertain.
    So far no one has considered what we might raise from the eventual sales of bits, or all of, Northern Rock, Lloyds Group or RBS? Likely to be many billions even if they simply break even.
    Nor when and how banks registered in the UK will start paying taxes again? Or when other Corporation taxpayers will return to usual profitability and tax paying?
    The political question is: who's most likely to keep calm enough in this worldwide storm to steer us to safety? Can't be Osbourne and Cameron, they're panicking already. So who?

  • Comment number 65.

    All that we have seen in the last 24 hours has been a holding operation. Sure the banks have had their slap and not before time; but so what?

    What about the rest of us? What about the unemployed? Well, we have had our slap as well: a payroll tax? Not a bright idea at all.

    As for recovery in 2011; well, we were going to recover by late 2009, then it was 2010 and now it is 2011. No doubt it will all be over by Christmas: in a year to come which as yet remains both indefineable and ill-defined.

    Where is this growth going to come from? Demand needs to be generated in the economy so that business ventures are encouraged to invest in servicing that demand through value-adding activity. Any sign of that starting out there? No, no and no.

    Let's face it: the economy is holed below the water-line and the only option for the moment is to keep on bailing until we get into the shallows. The trouble is that the captain and his officers just keep pouring the water back into the boat to ensure that the crew know their place.

    The banks are just one part of the problem: too much government is the other part. Time to cut taxes and government expenditure and keep on cutting both! This is the only way recovery will be achieved.

  • Comment number 66.

    Message to Alistair Darling...

    Debt Danger Signs
    Are you concerned about being in debt, or simply want to find out more?

    Either way, if you recognise any of the debt danger signs below you should spend time working out a budget. If you are paying out more than you are bringing in you should reduce your spending or seek help.

    - Do you pay for your weekly groceries by credit card or cheque?
    - Do you borrow from friends or family without knowing when you'll be able to pay them back?
    - Are you borrowing money to pay off other debts?
    - Are you unsure how much you owe?
    - Do you only pay the minimum amount due on your credit cards each month?

    Source: RBS website

  • Comment number 67.

    Well Finally! Among all the inane anti-Government bletherings some serious economics.

    #39 duvinrouge Excellent! Capitalism tends to overproduction, which leads to its periodic "readjustments" as it outstrips capacity to consume. The Big Fantasy of the NuLabour/Blairite was that readjustment(recession/depression/crisis) wouldn't happen as long as consumers could borrow (from abroad) as fast as they were spending. The key was to ramp up the value of British assets (houses, shares, land) to act as collateral for the debt taken out. Once the Brown stuff hit the fan we were lefet with a massive overhang of debt (private sector) of 1.5 trillion (that's 1.5 million million in proper British terminolgy). They belatedly realised that there was now a massive danger of a complete crash, in which deflation would push the debt out of sight, unemployment would soar, and we'd wake up one morning to find all our homes, employers and public services owned and run by foreigners like #25 foreclosing on loans.

    Having got us into the mess they've actually done quite well by transferring huge amounts of debt to the public sector (secured against future tax receipts) and setting out to maintain economic activity and employment so that a) there will still be taxpeyers around in the future and b) we can pay down our personal debt by remaining in work. The alternative 1979-all-over-again scenario beloved of the Tories and some posters to this site, would have plunged us into a much deeper recession, putting millions out of work, adding dramatically to the deficit while failing to maintain production, employment and therefore our ability to pay mortgages, leading to the scenario I outlined above.

    We do need a new economics, and as the command economy model of the eastern bloc has failed, I'm putting more of my economic activity with the Co-operative and Mutual sector which is weathering the recession better than the boom-and-bust sector:

  • Comment number 68.

    He (I think we can assume it will be a he)

    The BBC seems to be positioning itself to fight for Labour. They started by suggesting a hung parliament and look to be gradually shifting to endorsing Labour as the next government. Anything to do with the Conservatives reportedly wanting to reduce their tax handout.


  • Comment number 69.

    As we all know, the PBR amounted to nothing because, in a pre-election period, no politician is going to tell the public how nasty things are going to be. So where can we get some better insights into the likely look of things after the election?

    Try looking at Ireland's budget. Ireland has cut public sector salaries by upwards of 5% - and that's the second cut this year. They've also reduced benefits of all types. Taxes are increasing sharply. This is all pretty unpleasant, but it's undeniably necessary - and the Irish deficit, as a percentage of GDP, is no worse than that of the UK.

    So I suggest that, if you want to know what's coming here, take a look at the Irish budget.

  • Comment number 70.

    This seems a very bad time to be fighting an election. Mainly because it's forcing all the parties to go into "cut spending mode", which really is the last thing we need right now.

    While it seems to make sense on the surface, cutting government spending when the economy is in such a fragile state, combined with the ending of the various stimulus packages, is likely to send everything crashing back down.

    Obviously building up a mountain of debt isn't a great thing. But the problem isn't with Spending Now, it's with Not Saving in the good times.
    Governments (and people) should Spend in Recessions, and Save in Booms.

    Of course, that never happens, but that's partly our fault - as soon as the economy picks up we start clamouring for tax cuts. Governments tend to mismanage economies because if they don't - us voters vote them out.

  • Comment number 71.

    He (I think we can assume it will be a he)

    I think the BBC is gradually putting its weight behind labour, We started with them suggesting a hung parliament and now we're slowly creeping into subtle comments.

    Worried about their tax take with the Conservatives?

  • Comment number 72.

    #67 Co-operateordie

    I sympathise with the co-operative model you advocate, but it will only work properly in world that is socialist, i.e. not capitalist.

    The co-ops and mutuals around today have to dance to the capitalist tune.

    I agree no one-party dictatorship, but no reform of the capitalist system either.

    The people democratically taking control of the production process, i.e. direct democracy through councils.

  • Comment number 73.

    #70 soulgrind. You are correct that if you cut government spending things will come crashing back down.

    I wonder why it is that the third world doesn´t simply eradicate poverty by simply spending money that they don´t have? Why do people die of malnutrition? Why don´t they just buy food irrespective of whether they have any money?

    Why do some people in the UK have better lifestyles than others? If you want to buy an ocean going yacht, a big house, a fleet of sports cars why should it matter whether you have any money?

  • Comment number 74.

    At 10:51am on 10 Dec 2009, Decentjohn wrote:

    "The armchair economists who simply say cut the public sector fail to tell us how we make up for lost tax revenues and how they would pay for increased unemployment."

    There would be no loss of tax revenue as those in receipt of government funds do not contribute to the tax take, they are nett recipients of tax taken from the productive part of the economy.

    "Also they cannot agree on what should be cut - the NHS - Armed Services - perhaps because they have not thought broadly enough about the consquences"

    End all foreign wars and military presence, make the NHS emergency only, end public education, etc etc. Just because someone does not agree with your socialism does not mean that they have not thought things through.

    Government is the problem not the solution.

  • Comment number 75.

    #30, #31 and #46

    Thanks you for getting back to me with this.

    When (if) QE stops next year, can we force the banks to buy our guilts or are we asking them nicely?

    Is there a risk of a guilt strike? Or are we buying them through RBS, NR and Lloyds?

  • Comment number 76.

    6 U13736045 wrote:

    'Bloomberg report that the Govt is considering selling some of the corporate bonds it has purchased through QE to improve liquidity. Does anyone know what happens to money they get for those bonds ?'

    They will spend it. What else does this lot do.

  • Comment number 77.

    I got curious re what the deficit means in real numbers so went to the Institute of Fiscal Studies website.

    They say that 'increasing the basic rate of income tax by 1p would raise £4.5 billion in 2011-12.'

    So assuming it's the same for 2010/2011, to solve the proposed £78 billion fiscal deficit for that year alone would require a 17.3p increase in the basic rate of income tax (assuming all other taxes stayed the same).

    So the basic rate income tax needs to rise from 20 pence per pound to 37.3 pence per pound, or by 86.5%.

    That's before we start repaying the debt; this is just to eliminate the current structural deficit.

    Now it is clear what Labour and the Chancellor were hiding.

  • Comment number 78.

    43 SpartacusmartyrAAAs:


    : )

    Yars, a suck on the ol' mint does make yo' cheeks pull in. Why does Buoy George want the job.

  • Comment number 79.

    At the end of Day all this Economic Gloom along with a Bankrupted UK, the only People left that will have enought disposable Cash-In-Hand to flee this Country will be the very same People that got us ALL in this mess in the First-Place.

    As for the rest of us there will only be room left on the "New" Titanic?
    While Politicians, Bankers and the rest of the Elite Mafia Class are hard at Work moving their Finances abroad ahead of the pending Crash.

  • Comment number 80.

    O what short memories people have! Labour is far from perfect,but I do not think the Tories have changed much since they were last in Government.Does nobody remember the doubling of VAT,high rate VAT on electricity,double the present unemployment rate despite dumping a lot of claimants on IB?Large industrial areas decimated?The Poll Tax? Fuel Duty escalator? I could go on. So to all potential Tory voters-Be careful what you wish for...

  • Comment number 81.

    The easiest way to reduce government spending to GDP ratio is to include public servant income in the measure of GDP.

  • Comment number 82.

    75. DrG:

    We can't exactly force banks (or other institutions) to buy gilts, but there are various ways in which something like this can be accomplished. Government increases the required ratios for holding 'safe' assets, i.e. gilts, thereby obliging these institutions to become net buyers.

    But the problem is that this can't work on a big enough scale.

    It's extremely instructive to look at what's happening to gilts on an ex-QE basis. In the decade 1998-2008, two-thirds of all net gilts purchasing was foreign. Since then, the overseas percentage has fallen back sharply.

    There are two reasons for this. First, QE recycling - by UK institutions - is displacing foreign investors. Second, foreigners may, wisely, be giving UK paper a wide berth.

    To me, this suggests that the underlying, ex-QE appetite for gilts is very weak indeed. After all, the UK government looks an increasingly unreliable borrower, and sterling is clearly a cheapening currency.

    Gilts are supposed to be 'safe' investments, but they don't look too 'safe' to overseas investors, who have seen the value of their investment fall by about 30% over two years as sterling has degraded.

    This suggests that, without QE, gilts issuance could be in deep trouble, with failed auctions probable. This threatens to push interest rates up sharply, and to drive sterling lower. The temptation then will be to reintroduce QE. This will be inflationary but then, as somebody wrote not long ago, "inflation is the hard drug of the capitalist system".

    Though it's difficult to do this as a private individual, I think that reducing one's exposure to sterling is the best policy. Unless government can pull off a very difficult balancing act, sterling could be in very, very big trouble before long.

  • Comment number 83.

    To; 82. At 4:47pm on 10 Dec 2009, Friendlycard

    So far this year all the usual large net buyers of gilts (Insurance companies, pension funds, overseas investors etc.) were all net sellers of gilts, and the only large net buyer was the Bank of England.

    The Maastricht Treaty Article 104(1) forbids Governments borrowing directly from central banks, and the Bank of England has so far spent 99% on pre-issued gilts and only 1% commercial debt.

    It is now crystal clear that Quantitative Easing is a method of funding Government without officially breaking the rules.

    Robert Stheeman (The Chief Executive of the Debt Management Office) gave evidence to the Treasury Select Committee in early November and confirmed that they were cooperating with the Bank of England in the gilt market, but that when Q.E. stops, there could be a problem selling gilts.

    I’m starting to believe that there is little demand for UK fixed interest government debt anymore.

    I suspect that the financial instability of this country, along with the BOE printing money, has all but finished the fixed interest gilt market.

    In short I reckon you can only get away with devaluing fixed interest gilt holder’s investment once by printing money.

    I struggle to believe they’ll let it be done to them again.

  • Comment number 84.

    While the UK's Banking System is ever daily now looking leaner than the Leaning Tower of Pisa, is it True that many Banker's are now playing their Cards Right by keeping their "Cash in the Attic"?

  • Comment number 85.

    I feel sorry for Darling, he's just a puppet.
    Brown is causing real damage and should concentrate on a smooth handover of power ASAP.

    Call an election in Feb/Mar.

  • Comment number 86.

    83. Dempster:

    Quite agree - I think your interpretation of this is the same as mine. Essentially, foreign investors don't want to buy gilts - why should they? - and QE can only be used for so long. The government is undoubtedly monetising debt, getting round the Maastricht rule on a technicality.

    The irony of this occurred to me yesterday; when Mr Darling said that he would introduce anti-avoidance measures if bankers got round the bonus tax, what he meant was that he wanted compliance not just with the letter of the tax but with the spirit of it as well. "Just like you obey the spirit as well as the letter of Maastricht 104, eh?" was the question that occurred to me.

    Be that as it may, the electorate are being treated like children over this - the true outlook for the public finances is a horror movie that we're not allowed to see, at least until after the election.

    The reality is that the government's fiscal policy is running out of road. Public spending has increased to unsustainable levels on the assumptiom that "boom and bust" had been abolished. No one in his right mind is going to lend to HMG, let alone do so in sterling. QE is a temporary breathing space, designed to get us through to the election. After that, we get deep spending cuts (if the Tories win) or massive tax hikes (if Labour are returned). The UK is in deep, deep trouble. And Jim Rogers was right all along............

  • Comment number 87.

    At the end of the day, the economy has turned and public finances will improve.
    Has this budget made the public believe in Alistaier Darling?
    Has it made them feel good? No
    Why do the Tories make us feel bad but they get more votes when they do it?

  • Comment number 88.

    Sorry posted it unfinished.
    The Tories have to paint such a bad picture to get elected.
    Darling is so frightened of looking foolish thet he is painting a bad picture for them.Which helps them get elected.
    Since AD took the helm, the running of the UK economy has been suboptimal.
    The last thing we need coming out of a recession is a dourness.He is an advocate who does not know how to take the audience by the heart. His policies are not bad, they are just woefully presented even though they are articulated beautifully.
    We need spin now more than ever.
    Look at the Chinese.
    Does anyone say what terrible trouble thet are lining up for themselves, their house prioces have gone up 50% this year, their export markets crashed,they have had year on year inflation of 10% for a decade?
    They are in deep Schtum? They are too focussed on manufacturing, they should only let their economy grow by 2% without a necessary mini-recession EVERY 3 YEARS?
    Do we not need to re-appraise the BOEs central dictats to allow for much higher rates of growth that will get us out of this mess?
    Did we unnecessarily retard our groth in the 97--2007 period.....might it not have been better to let it grow at 10% if it had to?
    Do we not need a bit of wage inflation?
    Does anyone really believe that Euroland was inflation-wise a sound place afer 2000?
    Prices doubled.The Germans were on a permanent downer about themselves.
    Their debt approached 100% of GDP AND YET NOBODY GAVE A STUFF.
    How come they didn't fold?
    Did all that concealed inflation not actually do them a bit of good ?
    Does anyone know anybody's name at ECB?
    It seems that no news is good news.
    Is our media a confidence generator or a confidence-basher?
    We have a particularly well-developed news media, we produce a huge percentage of the world's news.
    It has to have an impact .

  • Comment number 89.

    Cutting back debt should be acheived, yet as the state of the economy and politics are so intertwined, a short term economic policy which pleases the electorate may have serious reprimands in the future. Debt and credit will always be attractive to a current government especially in a recession.

    Some form of coalition agreement to cut back debt to promote the long term health of the economy should be reached. For if it were a one party policy others could simply promise more to the electorate, at the countries coffers cost.

    Mr. Darling seems to be delaying the inevitable, potentially leaving the Tory government with a handicap that may ensure a Labour return to office.

  • Comment number 90.

    Re: 87. onward-ho.

    Why do the Tories make us feel bad but they get more votes when they do it?

    The simple Answer to this Question must lay in the fact that most People have chosen to forget that the last 18 Years of Conservative mis-rule of the Country when in Government was way back past 12 Years ago, therefore instead of realising that Britain has now had 30 Plus Years of very poor Government ,for as it easy and by far simpler to blame Labour for everything while forgetting that David Cameron was in the "Boys Advisers" of the Back-Room of the Treasury on the Day of Norman Lamont's Black-Wednesday.

    In truth, if we continue to keep Voting for any Labour or Conservative Monkeys, then we will just be set to continue to further get Organ-Grinder Leaders that will again just keep continuing by driving us ALL Nuts,with their hapless Policies for Government.

  • Comment number 91.

    Yet again (I remember the IMF) a Labour government has left this country economically bankrupt after being originally elected with the best economic situation in living memory. Unfortunately people have very short memories, and if the Tories do get elected it will be only be for 5 desperate years caused by Gordon Brown's appalling mismanagement of everything from the Economy, Education, Defence and the very fabric of this Nation(ie Scottish Devolution) as well as democracy itself (the rise of the BNP in core Labour areas).
    It makes me sad, and perhaps angry, that after the people of this country took so much pain and effort in turning around what was a 3rd rate country in the 70's, to become a country to be proud of again, Gordon Brown has successfully made a great effort (and largely succeeded) in destroying it.
    Perhaps when the dust has settled, we will finally accept that the Prime Minister who boasted "the end of boom and bust", presided over the biggest boom and bust ever. But of course - it wasn't his fault was it? He was only Chancellor and then Prime Minister for 13 years! It must have been the Tories!

  • Comment number 92.

    Pre Bombshell Report.

    The whole rickety structure of lies, theft and treachery will fall apart whoever gets elected.

  • Comment number 93.

    I was thinking that we need to get spending right but we also we need to correct our balance of payments deficit.
    According to WIKIPEDIA, Germany recently exported 1498 trillion dollars but imported 1.232 trillion dollars of goods ....result a healthy 265 billion dollar surplus.
    The UK on the other hand,with 75% of the German population, only exported a titchy $442B,but its imports at $621.4 billion dollars were also very small.Result a 179 billion dollar deficit.
    Oil does not account for much of this.
    And I expect that value-adding to the imported goods by making manufactured goods also adds to the German import bill.
    What it seems to say also though, is that apart from not exporting much, which is not good, we in the UK do not import much either, and I am not sure if I believe that, or if it is good or bad.
    Do we just import cheap stuff...are we less sophisticated? Or do we not spend much but get more for our importing pound... are we better at spotting cheap import bargains?(HAVE YOU EVER TRIED BUYING A BANANA IN A GREEK VILLAGE?)... or do we concentrate our production on the home market?... ARE WE BETTER AT MAKING STUFF THAN WE THINK BUT WE DO NOT SELL IT OVERSEAS....COULD WE SELL MORE?
    If we are bargain hunting importers,could some of this expertise be used to make cash abroad for UK COMPANIES by reselling abroad? Or is this lack of imports in UK a sign that this is what the Germans are also better than us at? eg LIDL.
    Can we reduce imports by getting our big spenders, the middle-aged women like my wife, not to splurge out on expensive foreign bags and shoes and our middle-aged men and women not to buy BMWs?
    Is Buy British a waste of time?
    WHAT ABOUT BUY in much do we all spend on our shopping trips to New York?
    Can we be selectively and patriotically de-blinged?
    If you must splurge, splurge locally!
    And our cities have become no go areas for people who hate being ripped off by congestion and parking and airport-charges.
    We could subsidise France to UK trips on Ferries and The Chunnel?
    We need to think out of the box.
    We need VAT and stamp duty discounts extended not slashed.

    To condemn people like me would leave half of LABOUR'S votes behind.
    The poor do not actually despise successful people, they want the chance to do well themselves.
    Why alienate folk with a few quid?
    Labour need to go away on sabbatical and come up with
    We all need to work hard and feel that most of the cash is our own, however much we earn!
    What Labour have come up with so far is not going to cut the mustard at the next election.
    Boom and bust has reared its ugly head.....but they kept it at bay for 12 years though.
    Green has gone mouldy.I respect your right to hold your views,but you do not have the right to control my life.
    Socialism is dead.
    Let's have a new name.. RESPONSIBLE AUTONOMY!
    Lending a hand,living a good life, not giving a good handout for life.
    Creating wealth for the poor, but not by soaking the rich.
    But Toryism is not the answer as at the root it basically stinks.
    We've all been there before, and for goodness sake let's not go there again.
    We are fed up hearing about greedy bankers...we want mortgages, we want to buy or sell our house,we want decent public and private sector accommodation .
    We want to go on holiday and drive our car and not be made to feel like a horror.
    We want to pass on our cash, all of it, to our families.
    We want to travel freely on our roads and cheaply from our airports.
    And we want our NHS to treat us as if we had BUPA but without the exclusions.
    We want our children to grow up drug-free, but to be treated without giving up on them if they do fall by the wayside.
    We want to be in Europe, but we do not want to be dominated by it....we need a programme of constructive self-protection, by de-emphasising its excesses.
    We want a very limited number of selected immigrants to be allowed into uk , we would like them to be treated well, but we want them to work hard and to integrate and contribute and pay their way before during and after their arrival in the country.We want their citizenship to be provisional on their contribution.
    We are now a diverse country and we are delighted to be the melting pot of Europe.
    But we need to renegotiate the rights of EU nationals to social security and recourse to public funds in order to correct any unintentional imbalance that has arisen recently.
    We do not want to be endlessly monitored.
    We want to be safe,but we want to be free.
    We live for and respect cultural,lifestyle,ideological, ethnic,social and religious diversity,freedom and tolerance.
    And we want to pay a heck of a lot less for government than we do at the moment.
    We want Labour toabandon a sacred cow...we want it to acknowledge that it cannot do everything for everyone.
    The public sector has to shrink ,and that is not bad, it is good.
    We want to stay America's ally , but we want to leave IRAQ AND AFGHANISTAN....NOW !
    YES labour have done a lot, but there's a lot still to do , and there's a lot to quietly forget about too.
    This is what we want to hear from Labour.
    And if we do not hear it,they will disappear very soon..

  • Comment number 94.

    33, you are joking right? Tax high cash balance accounts and gold accounts?

    So what's to stop the owners of those accounts withdrawing cash (or gold, or silver, or whatever) and putting it in a sock under the bed? OK, silver doesn't fit under the bed very well but you can hold 10-20 grand's worth of gold in each hand in a clenched fist.

    And the last thing we need is another inflationary spiral as that money chases things for the sake of being "anything but cash".

  • Comment number 95.

    Sorry......$1.498 trillion not 1498 trillion, they're very good, but they are not that good!

  • Comment number 96.

    Government debt of the United Kingdom :


    The Ghost of Christmas future!?!:
    [Unsuitable/Broken URL removed by Moderator]

    Relax , don't do it!!!!!

  • Comment number 97.

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

  • Comment number 98.

    Ms Flanders expresses political bias with comments like:

    "But here's what you say if you're the Conservatives - or for some reason you just want to be depressed ............."

    We can conclude that her professional view is that there is no cause for concern. I worry that too many journalists failed to see problems building until the liquidity crash, the imbalances were obvious. I simply do not understand how anyone could now think those problems have been fixed by the central bank buying bonds with notional liquidity.

    I am not aware of any structural changes made in the last year that could lead to a rebalance of surpluses and deficits. There has been a postponement and 2010 worries me; events are conspiring to make a return to the end 1970's crisis likely:

    First as many contributors have been writing for months, it is not surprising securities could be traded considering the way the BofE have been implementing QE and record low interest rates, normal UK Bond market conditions will return next year, respite for funding the deficit, but difficult for inflation. Inflation will create pressures to increase interest rates to manage exchange rates.
    Secondly the awaited election has deferred market judgement, however a conservative outright win will appear unlikely as spring approaches; the concern of a hung government, or a Brown win based on no spending cuts, will cause alarm leading again to conditions for further exchange rate falls and steeply rising interest rates.

    Am I depressed? Well I run a service business, we work internationally and our costs are mostly in the UK, a devaluing sterling is great. However I also experienced the crisis in 1970's, our international reputation was humiliating, very difficult to do business when your customers believe your whole economy is too risky. Do not want to be the "Sick man" of Europe again.


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