Getting to the bottom of Government Borrowing.

There is much in the media at the moment about just how much our Government is planning to borrow; and the figures are so big it can become a bit of a blur, quite frankly.

Is £100 billion a lot?

It helps to put it in some perspective. The Government has a total annual income that is roughly 40% of Gross Domestic Product, (the amount representing a total of everything the UK produces). GDP is about £1,400 billion, so the Government has an ‘income’ of roughly £550bn per year.

UK real public debt is expected to soar far beyond the 2007 level of £614 billion towards an estimated £1,065 billion this year. This would put UK debt at an eye watering 81% of GDP (from 46% of GDP in 2007). Worse is to come in 2009 and 2010 as the UK economy contracts and the short-fall between tax revenues and government spending is met by ever more government spending.

81% of GDP is knocking on for double the Governments annual income. That is the equivalent of a person on average earnings (£22,000) owing more than £45,000 – on an overdraft (ie excluding their mortgage); or an average domestic household owing around £60,000 on credit cards and overdrafts.

Not only that but current spending plans amount to spending 20% more each year than you have earned, which if you tried to do it would probably cause your bank manager to have a coronary.

This is the economics of the madhouse. This recession is partly a result of consumers spending less and paying off some of the enormous debts they have already piled up. It’s an absolute nonsense to imagine that the Government adding an extra £12,000 to the debt pile of every home in Britain is anything other than a formula for disaster.

And let’s not forget that unlike personal debt (which, if you die, is not repayable by your heirs) this debt is a legacy that our children will have to repay if we can’t afford to.

Will we never learn?
For those with long enough memories the current shenanigans with our Government bailing out high street banks and orchestrating mergers to create ‘national champions’ holds some depressing parallels with corporatist interventionist days of the 1960’s and 1970’s.

During the 1960’s the formation of BMC by the merger of Austin and Morris had already created a giant-sized but critically under funded car business that had too many outdated products - and the modern cars it did have (the Mini) were loss-making. Without sufficient profits BMC couldn’t finance new product development, and couldn’t modernise production, and was slowly failing.

Meanwhile a bright, young and ambitious management team was running a far smaller business called Leyland Group. They had re-invested the huge profits from their successful bus and truck sales into developing new and very profitable up-market Triumph and Rover cars like the TR6, Triumph Stag and Range Rover and sales and profits were booming.

Worried about the possibility that BMC might collapse the Labour Industry Secretary (a certain Anthony Wedgwood-Benn) forced a merger and created the monster that was British Leyland. Instead of Triumph ending up as a ‘British BMW’ success story we ended up with the actual German BMW picking over the smouldering remains of the entire UK car industry twenty years later, and only after the Government had wasted billions in ‘state aid’.

In my view there is a real possibility of the same thing happening with the latest Scottish bank mergers. We have proved time and time again that forcing or bribing a successful business to take on a lame duck behemoth backed by Government money is a formula for disaster.

Just like BL the management will never be free of Government intervention, branches and offices will have to stay open for political reasons and tough decisions will be fudged and delayed leading to enormous losses over decades ahead which you and I will have to pay for.

1931 1951 1970 1979

With Labour it's always the economy, stupid .

Above are the four Labour prime ministers who have so far lost office in the party's history. In each case it was a collapse in the economy that was a major factor or the sole reason they were ejected from power.

In 1931 the Labour Government collapsed when Ramsay Macdonald attempted to cut unemployment benefits and introduce a raft of stricter public spending cuts in the face of uncontrollable rises in the public debt; which his cabinet rejected forcing a general election and the formation of the coalition National Government.

In 1951, again seriously unstable public finances were tested to destruction by a run on sterling which brought about a foreign exchange crisis, drastic import controls and limited re-introduction of rationing.

In 1970 the famous 'pound in your pocket' devaluation of sterling in 1967 and an unexpectedly bad set of balance of payments figures released in polling week was widely seen as the main cause of Wilsons unexpected ejection from No 10.

In 1979 it was the 'Winter of discontent' that was brought about by the need to drastically cut public spending after yet another sterling crisis had forced Callaghans Government, now bankrupt, to go cap in hand to the IMF.

And here we are afte another Labour Government facing economic meltdown. Two of our biggest building societies have already gone bust and another three of our high street banks have had to be bailed out, Government borrowing is out of control and the pound has fallen to an all-time low against the Euro. Unemployment and inflation are already at their highest level for 16 years, and the recession has only just begun.

Sadly on this occasion we have the added complication of sixteen years of Labour 'spin' to factor in as well; so the true extent of our woes are even now being hidden from view. Labour have told us that our total national debt is 'no worse' than other countries. Unfortunately this is just not true, as Labour exclude debts from our statistics that other countries include in theirs (Private Finance initiative and civil service pension liabilities, for example); if you include those figures our national debt and the rate of growth of our national debt are the worst in the developed world.

Once again economic largesse has left the nation's overdraft out of control. If we were a business or a private household our bank would be bouncing our cheques. The danger is that Labour are about to discover the lessons that they clearly haven't learned from their own party history; that money doesn't grow on trees.

Consumers get the last laugh.

So, the European Union commissioners finally decided that dictating what our fruit and veg should look like is 'not in their remit' according to their spokesman today.

As a result soon it will once again be legal for (some) fruit and vegetables ro be sold to you and I even if they don't quite 'measure up' the the EU ideal.

It's only taken twenty years of corny headlines and poor jokes in The Sun every time funny fruit is banned from sale or furious headlines in 'The Mail' on the rare occasions when Trading Standards have upheld the ruling and prosecuted some hapless greengrocer to get these people to wake up and recognise the resentment and ill-will such rubbish creates.

This miniscule sign is that the EU commission is beginning to reconsider it's scope and role is welcome ; but it doesn't alter the main issue which is that unelected civil servants came up with these daft proposals and unelected civil servants will remove them.

And although this law has resulted in millions of tons of perfectly good fruit and veg going to animal feed or compost it is nothing when compared to the criminal waste of perfectly good fish that is occurring every day on our seas. Due to some equally daft fishing net restrictions millions of fish are being tossed, dead, back into the sea every day because having caught them by accident, it is illegal for fishermen to land them.

If the EU want to deter catching small immature fish to preserve future stocks the best way of doing it is to deprive the fishermen of the profits, this could be done by the compulsory purchase of undersize fish at a loss-making price, these fish could then be sold or given away by the EU to poorer countries whose population need the protein. Surely anything is better than simply tossing them back into the sea?

But then the day the EU comes up with such a logical solution to any of our problems will be the day that I eat my hat.

Well if you insist; my special hat-shaped pumpkin.

Who’s round is it anyway?

Binge drinking is back in the news today with a committee of MP’s calling for an end to promotional drink offers in pubs and supermarkets because, it believes people can’t be trusted not to get drunk if booze is discounted too much.
The committee called for a ban on selling alcohol as a loss leader and the setting of a minimum price for all drinks.

The report, "Policing in the 21st century", unveiled the strain it claimed that alcohol-related violence had put on police resources. Chairman and Labour MP Keith Vaz said: "We cannot have on one hand a world of alcohol promotions for profit that fuels surges of crime and disorder, and on the other the police diverting all their resources to cope with it."

Well, they took their advice from the Police forces concerned so it’s not surprising they all claimed a need for more resources; they would, wouldn’t they?

I live right on the Harbour front in Torquay, and we witness every weekend lots of young people having a good time, and in some cases, getting very drunk. This is not new.

Two things have changed to make so-called binge drinking a ‘crisis’ in recent years:
1) The almost complete eradication of drinking and driving means instead of being spread in small pockets in hundreds of pubs all over the countryside all our binge drunks congregate together in the town centre where they can become much more intimidating and rowdy.

2) The Police have become much more visible in response to public concern about the noise and rowdiness, and as a consequence of being there, witness and intervene in a lot more relatively minor criminal and anti-social behaviour, boosting their workload and arrest rate but somewhat distorting the statistics.

In actual fact, far from getting worse the amount of alcohol consumed has been falling steadily in recent years, an ONS study showed that in 2007 drinking was in decline, especially excessive drinking amongst adult males. Beer and spirit sales on and off licence are down 7% Wine down 5% and the largest beer and spirit manufacturers are merging and closing down at an unprecedented rate; matched only by the speed at which hundreds of pubs clubs and bars are shutting through a lack of trade.

What we are seeing is a complete U turn; MP’s who have only just backed the abandonment of one sort of restriction on the sale of alcohol (by opening hours) are now hurriedly urging it be replaced with another one (price).

This would be a huge mistake, as there is precious little evidence that increasing price reduces consumption, especially of the session drinking type; people out for a big night will find the money one way or another.

If this crisis is real (and I am not at all sure that it is) then the best way to deal with it is to leave local communities in charge of policy and policing and let each town develop the strategies that their local circumstances dictate.

I am delighted that Obama has won, and that Americans seem to have chosen someone prepared to challenge and change the status quo.

Having said that I can't help but wonder if the orgy of press coverage - especially from the BBC (who have covered this election and it's aftermath with more detail and for longer than they did our own election in 2005) is entirely justified, or necessary, or even terribly interesting.

I have just come back from three days in Germany and although their press did lead with his victory the headlines on the day it happened thereafter (and before) Obamania/America was relegated to third or fourth on the running order; and quite right too in my opinion.

America may change now that he is in the White House but the impact on the rest of us is going to be very minimal, and to be cold-hearted about it, not all positive. His campaign signals suggest a much more 'America first' economic policy which may well hurt our exports and if he goes further and introduces some limitations on cheap imports from the Far East there could well be some serious international trade repercussions for all of us.

His foreign policy is entirely focused (rightly) on the Middle East and we will notice almost no difference - we will still have to provide the bulk of the non-US troop numbers in Iraq and Afghanistan for the time being and there will still be horrors there for years to come.

Even his welcome embracing of the environmental argument has serious potential downsides for Britain. So far we and the Germans have built a sizeable expertise and market advantage in many emerging new energy technologies. I have a nagging feeling that the script from here may follow a time worn path, American business will be Obama Emboldened to exploit the technology we have developed and in ten or twenty years it will be American firms making, selling and profiting from the wind and sea generation, solar rooftile and similar products we pioneered.

I am certain that the mass of UK press coverage is not being warranted because of the possibilities and the risks that Obama brings to American policy and therefore the impact on our lives but for a much more depressing reason. Because he is black.

It didn't bother the Americans one jot, they voted for the best guy on the day irrespective of his colour. Why, then, does it fascinate our media so much?