Monday, February 14, 2011

UK National Debt: 22% of increase due to Labour, 78% due to banks

< Graph via Economics Blog from ONS

Since Labour seem incapable from responding to the Coalition mantra "Labour left us with this huge financial deficit", this Green Party member will try to do the job for them.

The graphs show the UK Budget Deficit (gap between Government income and expenditure) as a percentage of net National Debt.

On the right, it shows National Debt without the ~£100 billion pumped into the banks in 2009.

It shows the debt coming down from 40% of GDP to 29%, presumably from Gordon Browns famous prudence. It then rises to 32% in 2008. This is due to Labour's spending on the NHS, education, and social security. I suspect that Blair's wars in Iraq and Afghanistan play a part.
And as an astute comment below points out, as GDP falls (recession) the percentage played by debt goes up. This is made worse as tax revenues fall in the recession.

But look at the graph on the left, which includes the banks bailout. The debt rises from 60% of GDP to 150% - a rise of 90%. Nearly double.

Labour's overspend accounts for 22% of the debt increase, and the bank bailout accounts for 78% of the debt.

In round figures, the banks are responsible for 4/5ths of the deficit.

This demonstrates the basic dishonesty of the Coalition's mantra.

Yes, Labour took us into 2 futile and counter-productive wars. Yes, Labour overspent on health and education, but that overspend could be construed as investment. The social security increases are unavoidable in recession.Without the bailout, Labour increased our national debt by 50% from the figure they inherited in 1997.

But with the bank bailouts, debt accounts for an increase of 375% in the inherited national debt - nearly a fourfold increase. As opposed to a 50% increase.

Apologist for the bankers will argue that the bailout is a loan, and we will get it back when the banks get around to it. Let us hope so. Nevertheless, it is a huge unplanned imposition on the common wealth.

And the Tories are indulging the banks, because 50% of their funding comes from the city.

It is time the Paxmans and Humphrys of this world started to challenge the Coalition mantra "All Labour's fault". It is one part Labour's fault, but four parts bankers' fault.

Labour is 100% faulty in not pointing this out.


G.O. said...

Re the debt in the late 00s:

"It then begins to rise steeply, perhaps as tax revenues fall in the recession."

- also worth pointing out that since those graphs express the debt as a percentage of GDP rather than a raw number, they'd show a rise in time of recession even if both debt and tax revenues were somehow being kept stable. (For example: if you had a debt of £200 billion and a GDP of £1 trillion, your debt would be 20% of GDP. If GDP then shrank to £800 billion due to a long and deep recession, that same £200 billion debt would now be 25% of GDP.)

What's more, I think you're conflating Labour's discretionary pre-recession 'overspend' on health and education with their non-discretionary deficit spending during and imediately ater the recession. The vast majority of the debt that's built up is the result of Labour *choosing* to borrow £30 billion or so in certain good years, but of their *having* to borrow £150 billion plus in bad years.

G.O. said...

Sorry - last sentence should read "is the result NOT of Labour..."

Sean Skipton said...

Given these stats (and thanks for pointing them out) I am amazed that nobody in Labour - including the Milliband - appears capable of countering the coalition mantra. There is no opposition with any strength.

On Labour's 22% contribution to the debt increase, I believe this could have been reduced if it were not for so much wastage. I can think of money spent on refurbishing social housing and on NHS buildings, while another department was planning to demolish the very same and did in fact do so. And what of those grandiose IT schemes which turned out to go overbudget or collapse or both? Firms of consultants made large amounts of money out of the Labour government (plus all those government advisers), and many of them were simply there for the ride.

DocRichard said...

Dear George
(I'm assuming that G.O. stands for George Osborne, in self effacing mood)

Thanks, that is a helpful addition, the thing about % of a shrinking GDP. Likewise the distinction between non-discretionary and forced spending. Clearly, and accuntant (sic) could disaggregate the various strands of it, and the bank bailout is as I said, likely to come back in days to come. But why does it take an independent non-professional blogger to point this out? And as Sean says, why the hell do Labour do this work?

Sean, I have seen the wastage myself, over the years, particularly as a district councillor. I think the right response to this is through a bottom-up
Suggestion Box strategy.

Good point about the computer scheme failures. There's a link to someone who studied this here.

Rick said...

This massive increase in the bailout costs was only added to the debt figures in December. It doesn't represent borrowing; it's simply that the potential liabilities of Lloyds and RBS are now classed as part of the national debt.

Look at these two statistical reports from the ONS to see the difference.

The borrowing for the bank bailout is around 7-8% of GDP. At the moment, it's making a profit. It's costing us £5bn a year in interest and making us £9.91bn in fees and interest.

The main cause of the deficit is, as you say, mostly due to the simultaneous collapse in tax revenues and GDP and increase in recession-linked welfare payments.

But the laibilities of the banks do not represent 'real' debt that the UK will have to pay back.

DocRichard said...

Hello Rick

Yes, I have come across this before. It seems a gnarly problem.

Let's take it step by step.

The bailout is not borrowing. It is just classed as NatDebt.

First q: if it's not borrowing, why is it classed as debt?

Second, since it was/is ~£100bn, if we the people didn't have to borrow it to shove it into the banks, from which reserve did it come.

I'll stop there. Tired already. I can see that this one could run and run.

DocRichard said...

If, as you say, UK plc is making a net profit of £5 bn a year from the bank loan, it will take about 14 years for them to repay the interest, and another 20 years to repay the capital.

That's 34 years of liability, imposed as a no-alternative emergency measure by the credit crisis.

Also, we do not know what these banks are really worth, because of their holdings of derivatives which are impossible to value.

In all of this, I think the great simple question is: If there is another bank crisis, should we just let them crash, painful though it would be to the real economy, or do we bail them out again?

Real red-blooded FMFs advocate this approach. It is tempting.

Anonymous said...

I was under the impression that the Tories were blaming Labour for our current budget deficit - not the national debt.

The cuts are surely based on reducing the structural element of the former? After all, a profit will probably be made in the future by selling the financial assets Brown nationalised.

And does Labour not bear any guilt for having to bail out the banks in the first place?

DocRichard said...

Anon, The Tories mantra is that it is not ethical to saddle our children with a huge debt -i.e. the National Debt. Debt repayments contibute to the budget deficit.

A large part of the deficit is due to the recession which causes a falling tax take and rising unemployment benefits - cyclical deficit. The other, smaller part is the structural deficit, and this should be addressed not just by cuts - Greens are in favour of efficiency savings wherever they can be found - but by addressing unemployment by investing in infrastructure projects, notably the Green New Deal (energy conservation and renewables). We can go along with Labour's project of social housing investment too.

Yes, hopefully we can in the end make a profit out of the banks we were forced to own. The bank insurance we the people provided is a huge risk to us. NEF argue that the banks could come to us cap in hand again sometime soon.

Sure, Labour made mistakes. Deregulated the banks (not that the Tories complained. Deregulation reliably lead to bubbles. (Can't find the URL for that at the moment, sorry. Overspent on NHS and education. I'm not here to defend Labour, only the economy and happiness of the British nation.

joe higgs said...

Labur didn't have the rigour of the ideology that this lot have. Northern Rock will be sold for the Nation.Is PFI on or off the books now?

DocRichard said...

All good points.

hazymat said...

Without wishing to get too bogged-down in the debate as to whether the coalition's narrative is one of blaming Labour for the national debt or the budget deficit (I do think it's an important debate, but like all good politicians, the coalition leadership will I'm sure tread the line finely between appearing to say either one of those things)...

I like the analysis you provide, and I'm not sure if another commenter has made this point, but I do feel that the role of government is not merely as bookkeeper, which is the inculcation of this blog post.

The bookkeeper concept of governance is that you inherit a set of numbers (GDP, unemployment, poverty, growth, annual budget deficit, or even more esoteric metrics such as GPI), and you do the best with them that you can at that point in time. Perhaps you consider that national debt is already high, however you observe it is on a trend upwards, and as long as you don't take national debt too far above that *trend* in the coming years, that can be seen as responsible.

Naturally I am arguing that government is responsible not just for the books, but also responsible for the social outlook of a nation, which is something that is far harder to quantify, but that undoubtedly has a huge effect on its future economy.

I probably don't need to write any more about that here, other than to say that I think everyone would agree (even current Labour leadership) that Labour, when in power, made government too big, and that we are seeing the negative effect of this now - both socially and economically.

DocRichard said...

Hi Hazymat

Thanks for your comment. I believe that the main (if not only) role of Government should be to protect the interests of all the people, particularly the most vulnerable.

Clearly, the Coalition is not fulfilling this role, and is acting more to protect the interests of their rich buddies, using bookkeeping as an excuse.

Clearly, the budget deficit needs to be addressed, and i had a go here: