Tuesday, December 29, 2009

Barking at the moon: stats snapshot

The latest forecasts are that unemployment will peak at 2.8 million in 2010.
Unemployment will peak at 2.8 million in 2010, according to the latest forecast from the Chartered Institute of Personnel and Development.

The business group said unemployment would continue to rise for the first six months of the new year, despite the recovery in the UK economy.

The forecast is more optimistic than previous predictions.

Indeed. Let us, for a moment, ignore the fact that the true number of unemployed in Britain is about double that number and consider the government's response to unemployment worries.
The 2009 Pre-Budget Report announces:
  • an additional(1) 0.5% increase in the employee, employer and self-employed rates of National Insurance contributions from April 2011. However, the Government will also ensure that the 15 million people on income below £20,000 will not pay any extra National Insurance contributions.

Erm... Right, so the government's response to job losses is to tax jobs even further. Nice one. That section of the PBR website is entitled Helping People Fairly: hmmmm...

The median weekly wage up till April 2009 was £489, which is £25,428 per annum. So, helping people fairly is, in NuLabour's definition, raising taxes on those who are earning below the median wage. Nice.

Interestingly, the median wage in the public sector was £539 per week (£28,028 pa), widening the gap between the public and the private sector—in which the median wage was £465 per week (£24,180 pa).

Still, back to the PBR site and we find a nice little graph showing government spending for 2009–2010.

Wow! £676 billion—that's some pretty hefty spending. More than this last year at any rate. I guess that the government must be able to fund this lot, because they wouldn't want to increase the national debt anymore than they already have, would they?

Oh, fuck.

So, tax receipts are projected to be £498 billion, which leaves a shortfall—or "deficit"—of £178 billion.

Fucking hell.

And this isn't due to get much better: the "structural deficit"—that bit that won't sort itself out as the recession ends—is, as Wat Tyler points out, now predicted to run at about 10% of GDP or about £150 billion per annum.

Not good: not good at all.

What this means is that our government needs to cut spending by £150 billion per year before we even begin to pay down the national debt. Or, of course, they could raise taxes by £150 billion per year (a pretty tall order) or meet somewhere in the middle.

Of course, a AAA-rated government can always borrow money, but it may not be at favourable rates. Right now, with interest on government-issued gilts and bonds paid at around 4%, debt repayments are around £35 billion per annum.

If the markets lose confidence that the debt will be repaid (if, for instance, the state lost its AAA rating) or they believe that the interest payments will not be sufficient to cover costs (if, for instance, inflation rises considerably) then we will find that interest needs to be paid out at more than 4%. In the 80s, interest on government-issued debt rose as high as 16%.

The situation because even worse when you consider the problems of borrowing from foreign depositors.

Fucking hellski.


microdave said...

What the hell is the "Other - £72bn" in the spending chart???

If any normal business couldn't account for some 13% of their outgoings I'm sure questions would be asked...

Anonymous said...

Technically the interest repayment is worse than that. This fiscal year the interest repayment will be around £30bn but the following year it will jump to £44bn and it will remain very high for the following reasons:

1) Inflation-linked gilts are being issued in increasingly larger numbers in order to attract investment. Funds are concerned of the affect of inflation on fixed income bonds and the government has responded by issuing more of these gilts.

2) In the UK is inflation is "sticky downward" and the RPI-linked Gilts will be more expensive as inflation takes off in the future. The Government expects RPI to be between 3-3.5% which means that inflation will be higher in the foreseeable future.

3) Worsening fiscal position will require the government to issue more and more of the index-linked gilts to attract investors both as a nominal sum and as a percentage of the overall debt issued. This means that a larger proportion of British debt will be more expensive than in the past so the real interest rate is higher on UK Debt than on US or Eurozone.

All-in-all not a rosy scenario.

Chalcedon said...

£150 billion shortfall? Well, if the gov stopped wasting money on fake charities and closed down virtually every Quango they would save more than this even allowing for those rendered unemployed as Quangos and charities fold.

The King of Wrong said...

Um... Those graphs are for the current year - they're only slightly changed (Social Protection gets £190bn instead of £189bn) from the March 2009 Budget. Well, other than the fact that they were shades of red in March and are now green.

Yup, that's right, within months of the economy imploding HMG was already planning to piss away £175bn (now £178bn) more than it thought it could get... and it has already mooted plans to do the same in 2010-11, too. So, interest will be about £30bn this year, £45bn next, £60bn the year after - assuming our credit stays "healthy"!