Monday, November 24, 2008

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.

1 comment:

Anonymous said...

Did you back the flip-flop plan for drunk women? Is it a good use of our money?