Which is more than can be said for the UK budget figures.
This post is a simple, comprehensible, back-of-the envelope, top-of-me-head overview of Britain's present financial position.
It was stimulated by the problem that the Green Party has in funding its Green New Deal project.
The total personal wealth in the UK is £9,000 billion.
We have a National Debt of £850 billion, which is 60% of our GDP (£1,410 billion), or 9.4% of our total personal wealth.
One third of this is owed to foreign lenders, two thirds to domestic lenders. Which is good. It's like owing to members of your own family.
£107 billion of the debt (12.6%) is down to the 2009 bank bailout, some or all of which may (or may not) be paid off in future, if the banks come back into profitability.
So the core national debt is £743 billion, or 53% of GDP.
Greg Philo argues that a 20% tax on the personal wealth of the richest 10% of UK citizens would yield £800 billion, so they could pay the National Debt off once and for all. Which would be nice.
This debt looks savage, but in context, it is not impossible. In 1946, the UK national debt was 180% of GDP. Japan's current national debt stands at 194% of GDP, and Italy's is 100% of GDP.
However, our annual borrowing for 2010 will amount to £163 billion, 12% of GDP, and this is said to be unsustainable in the long run. Labour was getting borrowing down in its first few years, but borrowing increased after 2002 to pay for extra spending on health and education.
Of this borrowing, one sixth, £42 billion, goes in interest payments on the National Debt.
Some accountancy methods put future national debt at £1,340 billion, to include PFI and pensions.
We are also exposed to a potential hit of £800 billion if our banks go into a second cycle of failure, since the Government has insured them against such failings. A second round of bank failures, would not be good for the UK. The idea of neutralising some of the RBS debt by holding Fred Goodwin responsible for it, and bankrupting him in court, warrants further inspection.
So, annual borrowing stands at £163 billion. The LabLibCon parties are all talking of cuts in public expenditure to deal with this, but the Green Party wants to spend £36 billion a year over the next 20 years on a Green New Deal, creating a million jobs in energy conservation and renewables. The economic effects of this would be to reduce expenditure on energy for home heating, which would release it to circulate in the economy. It will also reduce the cost of our energy imports, and so help the budget deficit. So it is sound investment, but still, it is difficult to propose increased borrowing at a time when everyone is screaming out for debt reduction. Which raises the question - why does Government have to borrow at interest money from corporations for sensible projects that will benefit the nation as a whole?
Leaving that question aside, we still have to reconcile the square of unsustainable debt with the circle of expenditure to maintain and green our social economy?
First rule: if in a hole, stop digging. We can cancel planned useless capital projects.
Item to cancel £ billions saved
Aircraft carriers 5
ID cards 30
NHS computerisation 30
Other computerisation 30 (estimated)
Road building 7
Total £213 billions
Bugger. That only saves 1.3 years of borrowing. But it does save us from future interest payments. If they went ahead, these capital projects would increase our national debt by 25%, so cancellation will reduce future interest payments increases by 25%, so leaving us £10 billion a year better off than we would have been. So we can will stick that on the revenue account.
What about the revenue account? Remember we have to find £163 billion a year to balance the books.
Tax evasion costs the country between 7.2 and 100 billion a year, of which half is mediated through tax havens that we can legislate on, namely Jersey, Guernsey and the Isle of Man. However, I am going to go for the full whack, assuming that the global community of nations will act together to put an end to tax evasion.
Aviation taxes are a no-brainer. At the moment they get off with no aviation fuel tax.
Higher Income Tax (HIT) on high earners is also a no-brainer.
Transnational Corporations currently pay almost no tax to anyone, because they always claim that their taxable profit is made in a different country.
Item £ billions
Interest saved on Trident etc 10
Tax evasion 100
Aviation tax 10
HIT 10 (est.)
TNC tax 20 (est.)
Pull out of Afghanistan 6
(The £100 bn figure on tax evasion comes from the Green Party Tax Briefing report)
Remember the deficit is 163 billion. The above brings it down to 7 billion.
Now we can stick a Green New Deal (36 billion a year, if memory serves) in, bringing the deficit up to a manageable 43 billion, 3 % of GDP. Down from 12%. And now we have the GND running, a stimulus to jobs, and also reducing our energy demand, some of which is imported, so our balance of payments improves also.
If we get economic recovery, the increased tax take will reduce the deficit, but it remains unsustainable, with UK plc running further and further into debt with each passing year. There comes a time when the IMF gets called in, or our credit rating fails. However, we should not panic, and rush into major cuts in public services that will cause a second phase to the recession. All countries, (with the exception of a few (4) tiny places like Brunei) are in debt, and the UK has been running a debt for hundreds of years. Remember that nearly all new money is created through debt, so is should be no surprise that we are in debt. In the long run, a more rational way of creating money by issuing it interest free to invest in projects that will create real ecological wealth is the way to escape debt - but that will take many years to bring about.
In the meantime - what to do?
The LabLibCon scheme is to cut public services. The 2010 election was marked by a meaningless squabble about who will cut most, where, and with what degree of reluctance or relish. They will talk in terms of tough decisions, difficult choices.
OK. Let's have a look at public expenditure 2010-11 (Grateful thanks btw to the excellent Debt Bombshell website, who have dug all the figures out of the pile of obfuscatory manure in which official sites hide them)
|Benefits and Pensions||195.5||202.6|
|Law and Order||19.6||19.6|
|Total government spending||671.4||701.7|
Where are the cuts going to come? Anyone? Volunteers?
No, I thought not.
The process has already started, with £2.5 billion of spending cuts in universities, which are already causing shock and horror. £2.5 billion. 1.4% of the total cuts required to balance the books. Repeat this process 71 times over, and you are getting there. Each cut will cause dissent and anger, which could escalate into demonstrations, and possibly even riots. Look at Greece.
The 2010 election has started with a wrangle about which services to cut, and which taxes to raise. Labour has blunderingly come out with a tax on jobs, which is not a good idea, even if the Tories and their business friends are trying to exaggerate its effects.
Mindless cuts mean not just worse services and disaffection, they mean redundancies. Redundancies mean mortgage payment defaults. Mortgage payment defaults mean a second round of problems for the banks with their Toxic Asset problems, where mortgages have been bundled up and repeatedly sold on, gaining in "value" each time, disappearing into the Byzantine world of derivatives. When these derivatives go bad, they come back to the banks.
So the risk of public spending cuts a la LabLibCon parties is that we get a double dip recession, and that means a double dip in a swimming pool filled with doggy do's without a shallow end.
So. Lovely. Damned if we do continue with a deficit budget, and damned even more if we don't. The words "creek" and "paddle" come to mind.
How do we square the circle of debt and public spending? I'm going to be brief here, because I'm getting tired, and you are probably getting bored.
- Roots-up efficiency
- Demand side management
In this method, Government would simply say to the big spending departments, "You get 1% less each year for spending. Find the savings within your department, but do not cut front line services unless they are demonstrably useless". This will oblige them to find ways of losing management jobs. This is tough on managers who lose their jobs, but it is the nature of management to create work for itself to do, and therefore these are cuts that can be made without affecting public services.
A similar process was very effective in the Civil Service. A team of auditors were able to look at any department, and suggest changes. I know the guy who used to work in this, now retired. He said they saved millions until they got cut to save money. (sigh).
A further massive efficiency saving can be made in Social Security. Remember that at present, pensions and benefits come in at £203 billion a year - the biggest item on the national shopping list. The crucial weakness lies in the fact that JSA is paid on condition that the claimant does no work. This keeps the claimant in the unemployment and poverty trap. A Green Wage Subsidy would facilitate the passage of the claimant into work that is beneficial to society and environment. Benefit payments are not changed in the short term, productivity rises in the green sector of the economy, the tax take increases.
Demand Side Management involves deliberate and sustained transformation to the whole of the UK economy to make it more equitable. It is predicated on the truths established by Wilkinson and Pickett in their invaluable book, The Spirit Level. If we make the UK economy more equitable, if we reduce the rich poor gap, then we can expect general levels of health, social integration and morale to increase significantly. We can also expect levels of crime to fall, which means less expenditure in the community, the police service, the court system and especially, prisons.
Here are a few ideas on how to reduce the RPG (Rich Poor Gap).
In conclusion, we have a big choice. Conventional economic and political thinking has deposited UK plc in a massive hole of debt. Conventional approaches to rectifying this problem, by swingeing cuts in public expenditure run a real risk of causing a bank crash, a double dip recession, and possibly a rebellion.
The alternative is to continue, reluctantly, with the inherited debt, and transform public services and demand for same by bringing about a more equitable, more green, economy whose prosperity will eliminate the debt in the longer term.
One possibility is a global meltdown of the monetary system. This would necessitate a rebuilding of the economy, which can be done, and might result in a more rational system, with economics based on ecology.
I stress that the proposals here do not claim to be sufficient. Only necessary.
There is a proper professional analysis of this problem for Compass over here, which shows how the deficit can be covered without public spending cuts.
So in conclusion, we can have a Green New Deal and cut the deficit at the same time. But don't hold your breath.
UPDATE: Ultimately, the basis for Osborne's hysteria is the risk of our credit rating being downgraded. This needs a blog post all to itself, but here is a list of the most vulnerable at Dec 2009. We are not on it. Here is a list of the world's safest economies. We are not on that either. We lay 25th from the top in Dec 2009. Calm down, George!