Our economic health: Part 1 National Debt

I’m getting back on track after a flurry of meetings, events, and necessary recovery time. I’ve been meaning to do a series of posts on our economy. Now seems a good time, after the first coalition budget, defence review, and comprehensive spending review.

The starting point is to look at the key indicators of our economic well-being; the National Debt, Budget Deficit and Structural Deficit, Balance of Payments, and Inflation.

The National Debt is, in theory, the total amount of money the government has borrowed to pay for wars, and infrastructure. Stuff you could define as investment.

Looking at the National Debt as a % of GDP,which is the total value of everything produced in the country, is a good way of relating it to the size of the economy.

What’s the size of the National Debt?

You’d think there would be a simple answer to this question. Nope, it depends what you include in the calculation. The official national debt is £932billion, equivalent to about 62% of GDP Some people think our national debt is as high as £7.9 trillion. These two sources describe the difficulty in measuring the national debt.

Where does the money come from?

The government sells ‘gilt-edged’ securities, for which it receives money against a promise to redeem the loan at some future date, and on which they pay a small but guaranteed and regular interest. UK pension funds and insurance companies are the biggest purchasers of gilts, followed by foreign investors, all of whom are looking for a safe investment.

What are the problems?

There are a number of problems, which are:

  • Borrowing for lifestyle not investment. It’s possible to argue the case for using debt to invest in roads and the like, but to borrow to pay for welfare and health spending is not investment, it’s living beyond your means, which is what we’ve being doing for some years. It’s unsustainable, even in the short-term.
  • Speed of its increase. In the year 2000-1 the national debt was £311 billion, by 2010-11 it’s reached £932 billion. Uncontrolled increases in debt cause investors to worry about the ability of governments to repay the loans, and also to meet the interest burden, which results in an increase in the cost of borrowing money. Strong investor confidence lowers borrowing costs.
  • Size of the interest bill. The interest we pay for borrowing £932 billion is £42.9 billion, which is more than we spend on defence. Again unsustainable.
  • Difficulty of reducing the national debt. It took until 2006 to repay loans from the USA to pay for World War II. The debt can be paid down only when our economy grows and national income is higher than spending. Now that’s a tough call at present.

In summary, managing the national debt is hugely important. It’s not an arcane subject. It’s an accurate reflection of the state of our economy.

Cut of the day 8: No council tax revaluation

Not quite a cut in the strictest sense of the word. Eric Pickles’s cancelling of plans for council tax revaluation in England, means increases in council tax that would have resulted from the revaluation will not now occur.

Here’s what Eric Pickles said in his announcement,

“We are today confirming that there will be no council tax revaluation which could have pushed up taxes on people’s homes.”

The BBC reports in on the change HERE, and ConservativeHome have more details on this new policy, and why it’s to be applauded, not least as government inspectors will not now be compiling a database of everything to do with our homes.

Cut of the day 7: Department of Culture, Media and Sport

No, it’s not the Department of Culture, Media and Sport being abolished, but there’s news in the Financial Times, and on ConservativeHome website of some serious spending cuts, which is where I saw this report,

“Jeremy Hunt, culture secretary, may control only a £2bn budget, but the Treasury is hugely impressed with what he plans to do with it. …. [he] has outlined cuts of 50 per cent in the running of his department in an attempt to protect frontline funding of arts and sport. … Mr Hunt’s aides say he was one of the first ministers to scrap official cars and end first-class travel. The Treasury is also impressed by his plans to move his department out of offices near Trafalgar Square with a view to sharing space with another Whitehall department, reducing an annual £10m rent bill.” – FT (£)

A few years ago, the memsahib and I visited the DCMS offices on an London Open House day. The guided tour focussed on the art on loan from the Government Art Collection. I sat in Dr Kim Howells chair, the then Minister for tourism and broadcasting, and admired his choice of art on his office walls. The offices are modern, light and spacious, not plush, but close to it. They are rather grandly placed just off Trafalgar Square [pictured]. So it’s to Jeremy Hunt enormous credit that he’s moving the DCMS offices.

Cut of the day 6: less street clutter

How often have you thought there are too many road signs, which simply clutter the road, and give sensory overload. Well, now something is being done about it.

Philip Hammond, Transport Secretary, and Eric Pickles, Communities Secretary, have jointly announced that, 

“Councils will today be urged to get rid of unnecessary signs, railings and advertising hoardings in a bid to make streets tidier and less confusing for motorists and pedestrians.”

Makes you wonder why the previous government never did this, I guess it was down to their authoritarian and controlling nature.

The government didn’t announce this as a spending cut, but as a way for Council highways departments to save money. So I’m bagging it as my sixth spending cut of the day.

This government announcement seems to have garnered plenty of supporters, in the Civic Voice, FixMyStreet, and LivingStreets.

The media’s view of 100 days of the coalition

The way I see it, the arguments in favour of the coalition are compelling; pragmatic compromise between the Lib Dems and the Conservatives equals rationalisation of policies; merging of the talents within the two parties; legitimacy to tackle the fiscal and structural deficits; no party won an overall majority so coalition politics are essential to get the country moving, or we’ll be faced with another election.

You might like to read the some of the commentators views on the first 100 days of the Coalition government. Some are favourable, some are hostile. Here are two of each.

During the week I’ll give my own short summary of the 100 days of the coalition government.

‘Armchair Auditors’ strike lucky

Eric Pickles, Communities and Local Government Secretary, coined the phrase ‘armchair auditors’ to describe the actions of the public when reviewing all of his department’s expenditure in the past year.

Some people have got at the data with all the rapidity of a fox in a chicken coup.

  • Guido has spotted a bill of £7,500 from the Smith Institute, Gordon Brown’s dodgy think tank. He wonders if other government departments have similar bills? Good question Guido.
  • The TaxPayers’ Alliance have had a rolling blog all day as they trawl through the figures. They’ve totalled up the bills from SOLACE  – (Society of Local Authority Chief Executives and Senior Managers) the representative body for senior strategic managers working in the public sector, which come to £104,000. Hmmm. This is like a senior staff union, however you dress it up.
  • The Daily Mail is indignant, well, what do you expect, and the Daily Telegraph picks out the ‘gory’ stuff too.
  • This news doesn’t figure among the lead stories on the BBC website, again, what do you expect. Their little piece HERE is buried in the politics page. Sorry Beeb, this is a BIG topic. Maybe they’re afraid transparency will be catching.

Praise deserved to the department that first in publishes their expenditure. Good job Eric.

Cut of the day 3: Use of lobbyists stopped

I’m a bit late with this one, as it was announced last week by Eric Pickles, Secretary for Communities and Local Government.

Eric wants to stop Local Government and Quango’s from using lobbyists. Claiming it’s wasteful for them to hire lobbyists to lobby government for more money or their pet project. In Eric Pickles’ article in the Guardian newspaper on the subject, he begins,

“Many councils and quangos hire public affairs firms using taxpayers’ money to lobby government for even more money: it sounds like something that shouldn’t be allowed, but it is happening with increasing frequency.”

There’s no need for this expenditure, when that’s the job of local councillors and the marketing teams in local government to press their case. I can imagine an odd exception or two, but Eric’s argument is sound. It’ll force councils to hone their own skills, and not rely on expensive outside help.

In his Guardian article, Eric provides some examples that he considered wasteful expenditure, and one is about us in Surrey. He says,

“… when Surrey police authorities tried to raise their council tax precept by over 7%, they hired top dogs Weber Shandwick, using public money to try to oppose a cap.”

Eric is leading from the front here, by informing his Arms Length Bodies [Quango’s to you and me], all nine of them, to cancel their contracts with lobbyists. If you’re interested in what’s been cancelled, take a look at the list at the bottom of his Department’s press release.