For fiscal year 2009-10, the Treasury wants to borrow up to 8 percent of GDP. Historically, this is an unprecedented deficit. On its website, the Treasury provides deficit data since 1964. Next year's deficit will be larger than for any year in over 44 years. In fact, we probably need to go back to the second world war to find a larger government deficit.The previous record was in 1994, when the deficit was 7.7 percent of GDP. However, the Major government managed to cover part of this huge gap by privatization sales. Flogging off government assets helped keep the public sector indebtedness down to a little over 40 percent of GDP.
Even during the chaotic 1970s, governments managed to keep their deficits to 7 percent or less. Those deficits finally came down after north sea oil revenues started to flow into the treasury coffers.
Darling is planning several years of bloated deficits. In 2010-11, he is projecting the deficit to be close to 7 percent of GDP. But will he get away with it?
In previous periods of high government spending and a rapid build up in debt, the UK managed to buy some time with one-off windfalls. However, Darling can not count on any oil or privatization revenues to bail him out.
Without a magical windfall, there are only two things that will resolve deficits of these magnitudes; lower expenditure or higher taxes. No prizes for what New Labour will choose.
11 comments:
New Labour is building up massive debts that will seal the fate of the UK for the next decade (or two)at least.
Most people aged 45 and up will never work again and those that do find jobs will have to accept lower salaries and pay more in taxes to fund Labour's spendfest.
Reckon soon that the policy of bailing everyone out will end, as the pace of failing businesses accelerates exponentially in 2009.
I see Brown resigning when the money finally runs out and inflation rises dramatically due to the weak £... not a pretty picure is it.
Privatise the entire public sector workforce, I'd say. I.e. fire the lot of them and let them discover their true market value. If they provide a real service, people will pay them for it. The rest of them can draw benefit at a vastly reduced rate than the "salary" they drew that will have thus been proved to have effectively been "benefit"
Yeah, we're screwed.
I'd be really scared if I was:
(i) middle to late-middle aged
(ii) recently bought / upgraded house
(iii) public sector or retail
(iv) looking to draw pension within the next ten years
(v) lacking real job skills (see "public sector" and "retail")
This 8% of GDP thing - I don't believe it. It doesn't make sense.
The noise in the media would suggest that the Government is planning an unprecedented Keynesian stimulus - giving a massive boost to all public sector projects... but I'm not seeing any indication of that any specific projects are likely to be given the go-ahead. All the anecdotal evidence I see is of a shrinking public sector - just like we have a shrinking private sector. If this money is spent, I imagine it to be accounted by a tax shortfall and spiralling benefit costs for the unemployed. Of course, in the interim, it makes sense to spin this as an economic opportunity. In reality, I think it is nothing but. I think that the outcome will be lower wages in the public sector - as more people compete for jobs there... persuaded by the anticipation of stronger future earnings and an illusion of job security.
From a political perspective, this only needs to work until after an election. As I anticipated ~18 months ago (before Brown became PM) the point at which sentiment will really change is the day after an election. If Labour win, there'll be no need to keep up the pretence. If the Conservatives win, they will need to expose as much negative news as possible to make clear that they were not responsible for the current situation - similarly for Lib Dem (not that this is an outcome I'm seriously suggesting.)
I think that the news for jobs in January will be spectacularly devastating. I do not think that even an 8% of GDP stimulus can reverse the onslaught of the depression that I now see as inevitable... the only implication that I see is that the public accounts will become so bloated that the government will be unable to manoeuvre after an election.
Lower expenditure will result in sharper economic fall-off; higher taxes will only drive what little industry remains overseas. Economically, every play is a losing hand. Politically, however, it is possible that voters can be motivated by fear and the hope that one party or another can 'save them' from the harsh reality that the majority in Britain face. Never underestimate the stupidity of the populace.
Nick VM: "I'd be really scared if I was"...
Maybe you could be more succinct if you stated the converse - the situations in which you'd not be really scared.
asteve
I'd not really be scared if:
(i) mid 20s to mid 30s
(ii) healthy
(iii) private sector with real skills
(iv) renting and zero debt
(v) large savings spread across a few currencies
(vi) offshore gold emergency fund
(vii) white
All those describe me except I didn't have the foresight to diversify currencies so I'm 95% in sterling. Perhaps they all require explanation:
(i)plenty of time to make up shortfalls in later life, not about to retire, young enough to retrain, not dependent on career-high earnings
(ii)not reliant on government services and able to work
(iii) due to coming public sector bloodbath
(iv)avoid asset deflation
(v) as with iv but also liquid to cushion any shortfalls in regular income
(vi)incase Gordon does a Hoover / Chavez / Mugabe I need enough to buy a ticket and to bribe the border guard
(vii) As the diversity thing unwinds, and the anti-Muslim backlash gets going now the oil money has run out to support the global jihad
Gordon is a real record breaker isn't he?
pity they all start "the worst....since"
NVM, I score 4.5 on your OK 'if' - but I think your criteria are wrong... from a practical, pragmatic and ethical perspective.
I'm scared because I see a shock with which many will be unable to cope. I'm angry because this entire situation arose through greed and deceit. I'm at ease because I really don't care if I survive this - I've no dependents.
Personally I think this will be bad for those who aren't debt-free and adaptable. I consider myself to be both - so, maybe there's still hope.
Have a great Xmas.
Yeah, merry Xmas to you. I suspect readers of this blog are safe in rough proportion to how long ago they started reading it. I think you've already put yourself in the top 10% of survivors by virtue of understanding what's happening and where its going.
The next 2 years will be like walking through a minefield and it helps to have a map.
My favourite blog and I don't know why.
Happy Christmas, Alice. you're a total star.
Hey thanks for the interesting stats and all, I like visiting your blog, thanks for such great posts!
Merry Christmas!
Nick Von Mises,
I totally agree with your opinion that peoples situation in the future depends on how long ago they started reading this or similar blogs, and I have also come to the conclusion that the origins of the UK class system are based on economic knowledge, or lack thereof.
Unfortunately for me personally, although I work in the private sector and have "real" skills (they seem real anyway in that they were difficult to get ( i.t. )), I worry that the false boom has created a false level of demand for my skills. We need more production line assemblers than programmers,who are used extensively by the government through consultancy services. Basically falling demand will also affect those with real yet unrequired skills.
I agree that being white is useful because if push comes to shove, then emigration is easier for Canada and Australia, both of which operate racist point based immigration schemes. As far as being a white native Brit in Britain being useful, well, that is the moot point for many, it isn't and shouldn't be really in a meritocracy.
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