Monday, 5 April 2010

Liberal Democrats say spend large on rail

Voodoo economics, as the Liberal Democrats want to spend £3 billion more, to reopen uneconomic railway lines (so that's more than that), to be taken from spending money on roads. Given most money spend on roads is maintenance (and £3 billion is 40% of the roads budget), it doesn't add up.

Wednesday, 31 March 2010

Let's expand the welfare state

So says Gordon Brown by announcing a "National Care Service" modelled on the award winning (!) NHS.

Obviously the UK is running surpluses, taxes are low and there is an overwhelming need that couldn't be met by ensuring the incentives are right for people to save for their own care.

Obviously Gordon Brown thinks the British electorate is full of idiots who can't look at record public debt and record budget deficits and think, how the hell are you meant to be able to afford a huge expansion of the welfare state?

Some think it was only the Greek government that lied about public finances.

Wednesday, 24 March 2010

Darling's bribe with your kids' taxes

The budget 2010, a last chance for Labour to auction off the yet to the stolen loot from future taxpayers.

The deficit was predicted to be £178 billion, it looks like ONLY being £167 billion. That's around £2780 of borrowing for every UK resident, or more like over £8000 per household - borrowed on your behalf by the government.

The government predicts 3.5% growth next year, few believe it.

What will it go on?


- Every British citizen will be legally entitled to a "free" bank account, paid for by you;
- A "Green Investment Bank" is to be set up costing £2 billion, because the government doesn't have enough banks and there is nothing like being forced to "invest" in commercially unprofitable ventures;
- New national investment corporation to be called "UK Finance for Growth";
- Support for the mortgage interest scheme, subsiding home ownership and propping up the property market (thereby disadvantage aspiring home owners) will continue, paid for by you;
- Money not needing to be borrowed because of lower than expected welfare claims is STILL to be borrowed to pay to help those under 24 find work and training, because they aren't very good at it themselves;
- £4 billion more to support the military operations in Afghanistan;
- Public sector pay will still increase, but no greater than 1% for two years from 2011, because no doubt they still deserve increases while all others have had real reductions;
- A third of civil service jobs to be relocated outside London to less expensive locations, which wont necessarily mean net savings.
- More money for pensioners, because they haven't benefited from increased Labour spending and because their grandchildren and great grandchildren wont get angry at them for paying for it


- Stamp Duty to rise to 5% on homes over £1 million (expect homes up to £1.1 million being repriced to be sold for just under that);
- Fuel duty is to go up 1% on 1 April, 1% in October and 1% in January, instead of 3% in April. The government profit from the road network will exceed 300% after spending on maintenance and capital;
- National insurance (a form of income tax) is to go up 1% as already announced, but those earning less than £20,000 wont have to pay, the logical reason surely being because they don't impose many demands on the health system (!). Those over £100,000 will have personal allowances reduced, because we know what a burden on the state they are;
- Alcohol duty goes up 5% on Sunday, 10% on Cider. Alcohol duty will go up 2% above inflation for two years beyond 2013.
- Tobacco duty is to go up 1% above inflation over that time.
- Crackdown on evasion and avoidance, with tax information agreements to be signed with more countries
- Freezing inheritance tax threshold for three years, effectively meaning more will pay it.


- End of a small stealth tax, ISA tax free allowances to rise according to inflation;
- First time home buyers (like the sons and daughters of home owners) will be able to buy a home worth up to £250,000 with no stamp duty.
- Business rates cut for one year.


- Changes to housing benefit so that a threshold of property values will be set so more expensive properties occupied will not be eligible for the benefit. Estimated to save £11 billion.
- The Dartford Crossing (toll bridge and tunnels) and Tote (TAB) are to be privatised to raise cash to pay debt.

So the verdict? Dithering. No serious attempt to tackle the deficit, with the main news being around incremental increases in taxation.

This is the first bid in the advance auction of stolen goods called the forthcoming election.

Monday, 22 March 2010

Borrow for the internet

Budget deficit? National debt? What are you talking about?

According to the Daily Telegraph, Gordon Brown is promising to bribe current voters by borrowing from the kids some more by promising that every citizen will have access to broadband internet services, without saying when or how much he is going to spend to achieve it.

I will wait to see when he'll promise everyone will have access to uncongested roads, public transport that goes everywhere you want, and anything else people might want, but never mind, it's good old fashioned socialism - subsidise people who live in lower cost remote areas. Given he is already taxing every landline £6 (which just encourages more people to abandon such lines in favour of mobile phones), and is already subsidising to extend broadband to 90% of homes, it's just more largesse to bribe voters dressed up as "caring".

He put forward a semi-Orwellian vision of a single website for the state for citizens, personalised, so you can pay all of its varied taxes and levies, and demand information and largesse in return.

"a single website would offer people the chance to “manage their pensions, tax credits or child benefits; pay their council tax; fix their doctors or hospital appointment and control their own treatment; apply for the schools of their choice and communicate with their children's teachers; or get a new passport or driving licence - all when and where they need it"

Given the UK government record on so many IT projects, I am sure you can't wait to see how you'll be forced to pay for the failures of this idea, rather than simply letting providers figure out how to do this themselves.

Thursday, 11 March 2010

Screw the deficit, build high speed railways

Unsurprisingly, Lord Adonis has announced a plan to spend £2 billion MORE of taxpayers' money (future taxpayers, since the country is still in deficit) on building a high speed railway from London to Birmingham.

Where is the money coming from?

Most of it NOT from the business users who are primarily expected to benefit from faster travel times, but from future taxpayers.

Contrast this to the Channel Tunnel, which was financed and built by the private sector, ultimately went bankrupt, but saw the banks bear the risk and help nurse it to profitability. The train companies using the tunnel pay for it, and this is passed on in fares and charges to passengers and freight customers.

This is a blatant election bribe, a grandious big project to capture the imagination and get foolish voters starry eyed about the ludicrous claim that politicians make projects like these happen. They don't. All they do is force the money out of taxpayers, or borrow from future taxpayers, to pay those who build it.

At the very least, it should be shelved until the budget is in surplus, but preferably it should be left to private enterprise. After all, why should users of high speed trains be given a subsidy on their rail fare?

Thursday, 28 January 2010

History of UK public debt in recent years

The website UK Public Spending is an invaluable resource of economic history. It enables all to cut through the rhetoric and see whether the state shrank or grew under different governments.

Let's look at public debt.

In 1900 it was (as a share of GDP, which is the fairest and easiest comparator) around 30.2%
By the start of World War 1 in 1914 it had shrunk to 25.3%. So the start of the 20th century was a period of fiscal prudence, and prosperity.

World War 1 cost though. By the time the war ended, public debt had ballooned to 135.2% of GDP in 1919. An astonishing rise, demonstrating the enormous financial cost that accompanied the human cost of that futile war.

Between 1919 and the 1929 start of the Great Depression little had been done to address the public debt, which had ballooned further to 159.6% of GDP. The UK government had its share in the overdebtedness of the time.

The 1931 election, which saw a crashing defeat for Labour saw the incoming administration facing public debt of 171.5% of GDP.

By 1939, with the economy emerging into recovery it had shrunk to 137.7% of GDP. Still, the key point is that the UK public finances did not ever recover from the devastating cost of World War 1 and the subsequent economic policies.

World War 2 understandably nearly bankrupted the UK, with public debt soaring to 215.6% of GDP. At that point, Labour was returned to power with a socialist agenda of the NHS, wider public education, welfare and nationalisation of major industries. In addition, there was much reconstruction of devastated cities and infrastructure.

By the 1950 election, the recovery of the economy helped to bring the public debt down to 194.2% of GDP, still much higher than when the war started and not helped by the nationalisation of railways, coal mines, steel and healthcare. Of course in that election, Labour won a very slim majority and its attempt to boost it in 1951 backfired, with the Conservatives led by Winston Churchill, being returned to power.

Churchill retired in 1955, by when the public debt had dropped to 138.1% of GDP, through a combination of postwar recovery and prudence.

The 1959 election had seen Harold Macmillan take over as Prime Minister for the Conservatives. Public debt was down to 112.4% of GDP. This was the first time public debt had dropped below pre World War 2 levels, but it was still frightfully high.

Macmillan lost popularity and was replaced by Alec Douglas-Home as Conservative leader in 1963, and Harold Wilson had become Labour leader. As a result he won the 1964 election. By then public debt was down to 91.2% of GDP. The first time public debt was less than GDP since World War 1.

Labour's small majority saw Wilson call an early election in 1966, which he won with an increased majority. By then public debt had shrunk further to 82.3% of GDP.

The 1970 general election was won by the Conservatives, then led by Ted Heath. Public debt had by then shrunk further to 64.2% of GDP. Labour had continued with the level of fiscal prudence of the Conservatives.

After the second 1974 general election, Labour won a slender majority under Harold Wilson yet again. Public debt had been more seriously cut by the Conservatives, now down to 48.3% of GDP.

Between 1974 and 1979, Wilson was replaced by James Callaghan as Labour leader and Prime Minister, and Margaret Thatcher replaced Ted Heath as Conservative leader. By the time of the 1979 election, public debt had shrunk to 44% of GDP. Labour had not been as prudent as the Conservatives, but it would be a lie to claim Labour increased net public debt during that time.

In 1979, the Thatcher revolution started. By 1983 public debt had dropped slightly to 41.3% of GDP. A reduction on a scale less than that of the previous Labour administration, putting paid to claims of savage cuts during her first term.

By the 1987 election, Thatcher's second term had made further moves to cut debt down to 38.6%. Finally approaching levels seen before World War 1.

The 1992 election, which saw John Major having replaced Thatcher, saw public debt down to 24.6% of GDP. Lower than the level seen entering World War 1 and indeed lower than at any other time in the 20th century. The public debt had been tackled and assaulted by the Conservative government.

Sadly, John Major frittered it away. By 1997 when he was defeated by Labour led by Tony Blair, public debt had ballooned out to 43.8% of GDP. That single term led by John Major had wasted all that had been achieved before it under the Thatcher years. Public debt was back to nearly 1979 levels.

Blair and Labour entered power during boom years. By 2001, public debt had shrunk back to 32.1% of GDP, as Labour sought to demonstrate it was fiscally prudent during the first term, and as economic growth boosted tax revenue.

However, by 2005 Gordon Brown had let things slip. Public debt as a proportion of GDP had creeped back up to 37.4%, which during a time of economic growth and prosperity (and few tax increases) meant a significant spend up.

By 2009 it had shot up further to 55.2% and is now, conservatively, projected to be 82% in 2011.

The conclusion? World War 1 crippled the UK with a level of public debt that was not properly tackled until the Thatcher administration. However, whilst all post war government did watch public debt shrink, this was accelerated till by 1992 the UK was in the best fiscal position it had been for the century.

This was sadly blown by two government. John Major bears some responsibility for trying to spend his way into an election win in 1997, and failing miserably. Since then Gordon Brown let go after 2001 to have the net public debt grow during good time, and balloon once again during the recession. Public debt is now approaching levels it was at in the 1960s. Not insurmountable, but in great need of some attention.

Gordon Brown admits the end of the recession is just on borrowed money

The BBC reports Gordon Brown has rejected claims by the Conservatives and Liberal Democrats that the Government is delaying spending cuts because of the election.

He has claimed that to cut spending now would risk a renewal of recession.

So he is admittedly, in effect, that the economy is propped up on the borrowed taxes of future generations.

With even the more left of centre Liberal Democrats proposing £10 billion less spending than Labour, it is difficult not to believe that there has simply been a naked political calculation to leave the hard decisions on cutting spending until after the election.

Gordon Brown said cuts would be in "low priority areas". Which begs the question as to why the government spends money on such things in the first place?

Labour appears to be trying to pull the wool over the eyes of voters by the claim that cutting spending would be wrong now, but then when has it ever cut spending? Gordon Brown ran deficits in almost every year as Chancellor of the Exchequer. In constant terms total government spending since 1997 has gone up by 31% from 1997 to 2007.

So you might ask whether the average UK taxpayer thinks they have gotten value from that. Public debt went up 35% in that time, in constant terms.

So the simple question to Gordon Brown is this.

If you borrow heavily when the economy is doing well and run ever larger deficits, when do you cut spending and start running surpluses to pay down the debt?