The Guardian reports this morning that:
Britain will be on the “path to ruin” if Labour takes charge of the public finances, David Cameron will say on Monday as he warns parents and grandparents of the dangers to future generations if the country fails to deal with its debts.
So let's talk debt:
All data is from the HM Treasury Pocket Bank for 30 September. I have extrapolated 2014/15 borrowing form the August data to suggest whole year borrowing of just over £107 billion based on average proportion of total year borrowing to 31 August over the past five years.
The conclusions are stark: the Coalition has borrowed more than four times more a year than 3.3 times a year what Labour did, on average.
In five years the Coalition has borrowed more than Labour did in 13, by a considerable margin.
And there wasn't an unforeseen banking crisis on the Coalition's watch.
But what's very odd is the data on gilt yields from the Government. In April 1998 long dated gilts yielded 5.71%. A decade later that was 4.5%. By April 2012 it was 3.31% and in April 2014 this had little changed at 3.46%, but now it is 2.62%. If we had a debt crisis very clearly risk would have increased and so interest rates would have risen. But they haven't. Interest rates have fallen, significantly, and not just to reflect inflation.
So first of all we have no gilt crisis.
Second, we have no affordability crisis.
And third, we have a lost opportunity to invest at rates lower than we have almost ever known, which lost opportunity is why we have an economic crisis.
It's very hard to see how one man can get as much wrong as David Cameron can in the repeated sentiment he has to offer to the UK. But the evidence is clear: every single word of what he has to say is deeply misleading because it is so wrong. After five years in office all he has learned is that keeping repeating the misinformation is the only policy he can find that he still thinks worth pursuing. And, unfortunately, some still believe him.
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(Un)pleasant irony that on same day FT reports on plans by as many as 3 times as many people as expected to cash in their pensions at 55 via the govt legislation to be intorduced in April, with likely knock on for house prices and, erm, “legacy of debt”.
This is deeply worrying
Quite right – this money will be shoved into housing which is just about the most economically irresponsible act possible -so yet another bubble! The illiteracy and short -termism is mind boggling.
As you know, the only reason he gets it wrong is because he MEANS to get it wrong and mislead the public for political gain.
And of course public debt is an almost insignificant concern compared to the much greater problem of private debt – the ACTUAL cause of the recession of 2008.
Which David Cameron has failed to address at all – if you believe his rhetoric, only public debt counts for anything, and making much more private debt is a perfectly acceptable way for the state to get more money.
what he also doesn’t say is that some people’s children and grandchildren will be getting the debt repayments. Not mine, though.
Why woudnt his children get the debt repayments??
Government debt has never historically been repaid….
James, sorry if I wasn’t clear. The interest on the debts go to those who lent the money. Cameron’s children will pay taxes but it is likely that they will also have investment income derived from organisations which lend to the state, among others.
When we speak of gilts and money and how much one is worth in terms of the other, we should stop and remind ourselves now and again that both gilts and the money we use to value them with are both, er, just made up. Why on earth are we bothering to trade gilts, things we’ve made up from nowhere, for money, which we can also make up from nowhere? Why do we bother with gilts in the first place? One could argue that demand for gilts reflects faith in the country behind the gilt but does not the same apply to a country’s money?
This reply is really at the heart of the matter, money is produced out of thin air.
Instead of giving it to banks, the money should still be created but used for Schools, hospitals, getting out of PFI contracts, investment in businesses through a national bank (with money). It should be spent on investigation of international companies avoiding/evading taxes, as well as all tax. It should be used put money in at the bottom of the pile so that the economy is kick started.
What we need is aggressive borrowing to fund growth!
This is the message that should be more widely circulated. Richard, you have a following of people that understand the finance. A lot of the public need a simple version of the facts in a language they can relate too. Otherwise this “heart of the matter” will never be understood by the public.
Which party can we trust to do what you suggest and explain why they are doing it?
It seems none of the major parties will
We need to look to others
Great, but think there’s a typo in the fifth-last paragraph. I think you mean “In April 1998 long dated gilts yielded 5.71%. A decade later that was 4.5%.”
Changed
Thanks
I hope somebody responsible for Labour’s election campaign takes your graph and sticks it on a damn great poster, Richard, and parades it around the country. And also that all Labour shadow ministers and spokespersons have it to hand whenever they appear in the media (Chris Leslie take note for when you next appear on C4 News). A picture is worth a thousand words, an in this case probably even more.
Would be good, wouldn’t it?
Chris Leslie is a very effective Shadow Treasury spokesman.
I beg to differ….
Carol – ?????????
Chris Leslie is probably the least effective front bench spokesperson – from any party – since records began. He’s a Blairite empty suit. Most of the Labour front bench is completely ineffectual but Leslie succeeds in making even the likes of Ed Balls look good.
What I meant is that he is better in exchanges than anyone else on the Shadow Treasury team (although that’s not really saying much). He’s been very effective in not allowing us (Labour Land Campaign) to have a meeting, which we managed quite well when Labour were in power.
Carol, I was with Richard and Howard on this until I watched tonight’s C4 News and they had a young woman on (whose name I didn’t catch) who is another of Labour’s Treasury spokespersons, up against David Gauke. She was truly bad, in that wishy-washy, ‘I’m only following a script but I really have not much interest or conviction in what I’m saying’ kind of way. Somebody should force her to watch Blair at today’s select committee hearing. I detest the man, but he knows how to put on a show of passion (even if it’s mostly fake).
Shabana Mahmood?
I actually switched off when the discussion started because I knew it would be embarrassing. She’s the most junior member of the Shadow Treasury Team, and when I last tried to get a meeting with any of the team I was offered a meeting with her PPS. I didn’t bother to reply. In the past I had several meetings at the Treasury: with Ed Miliband; had a date to meet with Andy Burnham, overtaken when Yvette Cooper replaced him as Chief Secretary to the Treasury but unfortunately scheduled when the 10p tax fiasco blew up and she couldn’t see us. It’s a shame that Burnham was moved because he is an LVT supporter;o(
I doubt they’ll do that Ivan that is too much like being genuinely educative, an element that is now entirely lacking in politics. Labour has signed up to austerity economics and seem to believe that anything else is outside the Overton Window.
Today David Cameron said Britain had a choice at the next election on the economy between ”competence or chaos”. From these figures it is easy to see that he believes in the chaos theory of winning elections.
Richard
Where would interest rates be with no QE?
What other countries in the EU had a higher budget deficit as a % of GDP than the UK?
Would you have been happy for the Tories to cut spending dramatically ie by 3-5% of gdp in the first 2/3 years of office in order to reduce spending (and thus debt) more quickly?
Do you not think when QE ends and rates head back towards 3-5% that will have a rather large effect on the budget?
Interest rates would be higher
Quite a number of EU countries had higher budget deficits – we were will within the 3% limit
There has never been a reason to cut spending
QE ended three years ago. You obviously have not noted
This shows borrowing not debt. While I’d like to conclude as much as you do, I can’t see how you do it from this graph.
As someone who can’t count, I thought the end of last gov & this gov inherited a large debt because they lent money & took over bankrupt banks.
This meant cuts and increased borrowing to pay the debts the gov had taken on. So, we need the debt figs next to borrowing to see what the picture was?
However they owned a few banks. What I haven’t understood is why the gov can’t earn the money back from the banks before or when selling them.
Borrowing is the rate of change in debt
Funding the banks was not the cause of debt per se. The impact of banks not lending on the economy was the cause of the debt
Nice graphs/charts:
https://flipchartfairytales.wordpress.com/2015/01/10/lies-damned-lies-and-percentages-of-gdp/
George Osborne and the BoE are applying classical Keynsian economics, which is to borrow in the downturns and pay down debt during upturns. Monetary stimulus is working in the UK and Britain now has a bigger economy than France. The 1.3 trillion Pound debt of the UK will be easy to pay off, with little downside risk, hence the higher prices paid for long term UK gilts. The government has also cut the size of the civil service so that state expenditure goes into infrastructure and not salaries. This all looks pretty straightforward to me, so I do not understand the allegations that the PM is lying.
That is called ex post rationalisation
It might even work
Except it’s not true
Hang on Travis but they said that they were going to pay down the debt in 2010.
Quite clearly they have failed. So, you’re going to give them a second chance?
How nice. If I was a politician, you’d be my favourite sort of voter!!
A few other things whilst I’ve got your attention:
1) We may indeed have a bigger economy than France but that is because personal debt (not real earnings)is rising. Prognosis? The debt boom will end and we will have another downturn. Great!
2) Everyone’s wages is someone else’s wages – including tax revenue from wages. If you cut jobs (and therefore wages) or reduce wages (and therefore tax revenue is lost or reduced), this also slows down economic activity (reducing VAT – another source of Government funding) so where does your money come from to invest in infrastructure?
The answer for this Government is the money has to come from more borrowing – not from more revenue (which simply isn’t there because of the reasons above). And they only have themselves to blame by raising VAT, cutting benefits, cutting public sector jobs and budgets (impacting on the private sector too) and telling everyone (including business) that the country was in a worse state than it actually was.
Thanks Mark
And the only reason our economy is “bigger” than Frances is that we have been forced to include the nominal economy of prostitution and drugs, whereas France has flatly refused to include them. Great that our economic growth is now partially predicated on the black market.
Just not true
Shall we keep to facts
QE may be over in the UK but the BOE still has to sell Gilts back in to the markets which will put upward pressure on rates (not to mention the risk of massive losses on sale)
Did not the deficit peak at > 11% of gdp? If I recall correctly only Greece had a worse deficit in the EU
Cameron may be clueless on economics but he started with a massive deficit as opposed to Blair and Brown who started with a budget near balanced (before going on a massive spending spree)
Its comparing apples with oranges.
The BoE will never sell those gilts back
Ever
They are monetised and will remain that way, for good
That’s the beginning and end of it
Blair and Brown started with a budget where gov expenditure exceeded receipts.From 1998 through to 2004, receipts exceeded expenditure. From 2004 to near 2008, the UK had a near balanced budget, even with large expenditure on infrastructure.
After the financial industry crashed the global economy a bit later in the story, the gov then bailed them out. I would have let it all crash and burn. Then “nationalised” the crashed banks assets (mortgages) and given them back to their genuine owners. After all, the banks lent them nothing, then charged them interest on the nothing they lent them.
Plenty of money to support financial conmen, but none for healthcare/schools/disability benefits. Lots of money for the carpetbaggers, such as virgin….
You would have literally destroyed the economy then
If that turns out to be the case it will have been rather cheeky of the Tories to put it mildly to count interest payments on those Gilts in the budget (wasn’t it £35bn odd?)
Hamish -that’s because they all have to pretend that it is going to be paid back-it’s an accounting trick which has been played on the public. The so-called ‘unwinding’ won’t happen. Eventually people will forget about it.
As happened with the debt issued to banks to buy their German loans which would have otherwise left them insolvent in 1914