Thursday, 18 February 2010

Brace Yourselves

Because we are in for a bumpy ride. Both the BBC and Sky are reporting that the UK managed to increase its borrowing even further last month.

This is seriously frightening. January is not a normal month from the point of view of the public finances. It is a month when corporation tax is due and when most of the income tax due from anyone under self-assessment is due – in other words, all the taxpayers with the more substantial bills. Despite this, Brown and Darling still managed to spend more than their income. Not by a trivial amount, either – by £4.3bn. Granted, that is a “mere” £100 or so per taxpayer, but imagine what it would say about your personal finances if you spent more than your monthly income just on payday?

The reason for this disaster is simple. I’ve been sitting on this graph for a while, waiting for the right moment to post it. It originally came from the Spectator, a Fraser Nelson special, and it plots the changing levels of public spending and revenue over the recent years. Here it is:

Note the initial years of Gordon, when he kept to Conservative policies and prudence reigned. Note what happened in 1999 when his promise to keep to Conservative policies expired and he began to act like a Labour chancellor: Government spending took off immediately, and has outstripped revenue since 2001. Note (finally) that the previous rate of increase in taxation revenue started to weaken immediately.

This is a stark visual explanation of what Dave meant when he used to criticise Gordon's failure to fix the roof while the sun was shining. The simple fact is, Gordon has been accumulating debt since 2001. This means that when the bust came in 2008, we were already seriously in debt.

So whether you agree with increased public spending in recessions or not (and I admit that I can see the rationale for it), the fact remains that for this recession, we had already spent the money. So we started the recession weak, far weaker than we should have been. Gordon crippled us before we even went into the recession, and now we are seeing the effect of this.

I know I've posted this before, but take another look at George Osborne's response to Labour's plans, Tory Bear style:

Who looks wrong now?

And finally, we are told that everything will be OK, because Gordon and Alistair are going to halve the deficit in 4 years. Let's assume he does that. Let's assume he does it steadily, at the same rate of reduction each year. Let's assume that GDP remains steady and does not suffer a double dip. Let's (finally) assume that he continues after the deficit is zero, allowing him to pay off debt. Even if we make all these (favourable) assumptions, one fact remains. Starting (as we are) in 2010 with a deficit of 13% and a public debt of 60% of GDP, we reach a simple conclusion:

The UK Economy will look like Greece does today, in only 5 years.

That's all we have. 5 years.


  1. Put all the recent news stories together, add a bit of New Labour spin and it's all wonderful, Comrade!


  2. 2001 was a sad year. Apart from Blair winning the election, Douglas Adams died and the foot and mouth outbreak occurred.

  3. Thanks D - I can see clearly now, the rain has gone... :-D (excellent post of yours btw)

    M - yes, losing DA was a sad moment. To realise that the trilogy would have to stop at a mere 5 books, that hurt.

    (As for TB and F&M, don't get me started!)

  4. I thought 'Foot in Mouth' disease broke out in 1997?


  5. The January deficit is actually my fault. HMRC had to give me a refund on overpaid tax, you see...

  6. Sorry, but this post can't be regarded as reliable. I distinctly remember Gordon saying 'we are well placed to weather the recession' and 'we have got borrowing down.'

    Armed with this information, we can see that for your post to be factually accurate Gordon would have to be a) completely insane, or b) a serial liar, or c) a completely insane serial liar. Whereas in reality we all know he is a fully grounded genius with a highly developed moral compass, not to mention his personal warmth, charisma and outstanding leadership skills.

  7. Blue - if your refund was £4.3bn, then I'll be over for a pint later!

    Dave - of course, silly me. I realise now!