This week, we shall see George Osborne hold up his red dispatch box for the cameras, drive to the Palace of Westminster and deliver his last full budget ahead of the General Election. Being in a coalition government means that the electioneering aspects of the Budget will have to satisfy Conservative and Liberal Democrat political needs.
This will not be able to be a Conservative ‘tax giveaway’ Budget, nor a Liberal Democrat ‘spending spree’ one. It will probably sit somewhere in the middle, with personal allowances being raised to £10,000 pa a year ahead of schedule, Business Rates will neither be increased or lowered but reviewed (meaning stay the same), ‘loopholes’ in Capital Gains Tax accruing from offshore investments will be tightened, the pensions ceiling will be set at £1.25 million, there will be some small jiggery-pokery on Inheritance Tax, an announcement will be made on the taxation of partnerships to exact National Insurance on LLPs, and there will be some reliefs offered to ‘social enterprise’. Not a radical budget by any stretch of the imagination, bits here and there for both parties to claim as electoral capital, and the key phrase is likely to be ‘fairness’, evasionary techniques will all be snuffed in the name of fairness and so on.
Osborne will rely upon growing tax revenues from optimistic forecasts (standard practice), fiscal drag (a less potent tool this time due to wage stagnation), simplification of the tax code (fairness again), and some oil and gas revenues being seized from offshore based leasing firms.
He will talk of the UK’s need for infrastructural investment. He will use examples like Hinkley Point C (quite possibly the world’s worst ever procurement deal) and talk of future needs etc. This will be intended to appeal to Labour voters, and come with the promise of long term job security.
Osborne will also boats of his management of the deficit. He will use his optimistic growth figures add them to imaginary ‘efficiency’ savings and bring forward his target for deficit reduction. All is well then, is it not? No.
All the talk of the deficit is all a smoke screen. Current UK spending outstrips income by €120 billion a year, and while this is enormous, it is minute in comparison to the real problem: the debt, and the national obligations. Politicians would rather that we focussed on this figure because it is still a manageable size. With some economic growth and a few savings here, plus the odd accountancy sleight of hand this number will soon erode, and perhaps by 2018 actually disappear.
While continually focussing on the deficit, Osborne casually neglects to mention that since 2008 the UK headline debt has increased from £500 billion to just under £800 billion, when the Coalition took power, to £1.4 trillion in 2013. However, these figures still do not present the full story.
The question is: “What constitutes the national debt?” The figures I quoted above come from media reporting from the Treasury and the Office of National Statistics. But the question remains, are the answers that we are being given the answers to the question that we asked?
In October 2011, Nick Silver of the Institute of Economic Affairs produced an update to his 2010 report “A Bankruptcy Foretold”. In the report and its update, Silver questioned the reliability of the UK’s official debt figures. He sets out an estimate of the UK National Debt incorporating items that he thinks should be considered. He uses official data from the Treasury, so there is no question that these figures are reliable. It is up to us to decide if they should be considered within the debt itself, and face up to the true scale of the problem, and then make some very hard decisions based upon them.
Just how bad can it be?
|Public Service Pensions||£ 1,408,000,000,000||£ 1,133,000,000,000|
|Gilt Edged Securities||£ 804,000,000,000||£ 804,000,000,000|
|Provisions||£ 105,000,000,000||£ 105,000,000,000|
|Other Liabilities||£ 379,000,000,000||£ 379,000,000,000|
|Current State Pensions in Payment||£ 1,120,000,000,000||
|Future Basic State Pension Payments||£ 1,211,000,000,000||
|Future Additional Pensions||£ 467,000,000,000||
|Total||£ 5,494,000,000,000||£ 2,421,000,000,000|
Putting this into perspective, tells us that the deficit is an inconvenience:
What is the solution?
In the IEA’s new report “The Government Debt Iceberg” author Jagadeesh Gokhale comes to the conclusion that if the Government is to behave like a commercial insurance and pensions company and bookmark its liabilities “total spending would have to be cut by more than a quarter, or health and social care protection expenditure by 50% to avoid tax increases if current obligations are to be met from tax revenue in the long run”. The tax hikes would amount to a doubling of consumption taxes. Doing nothing, he argues, is not an option.
If countries fail to address their fiscal imbalances, the size of the necessary adjustment will increase over time, undermining investment opportunities and reducing growth potential. Countries cannot grow themselves out of these problems. Many of the projected expenditures would in fact increase with growth as the commitments are linked to wage growth, and most are protected against inflation in retirement.
UKIP must face up to this problem, and stop namby-pambying around. We cannot let Osborne fool us into thinking that the deficit is the problem, it is a problem sure, but the real beast is the debt. Do we, UKIP, propose to (a) ramp taxes up to levels that would make Dennis Healy weep, (2) slash the state to its bare bones, (3) let the Government welch on its debts and default causing a total collapse of the European banking system, (4) allow Government to seize sufficient private property until it has cleared the debt? Those are the only four choices left. A decision needs to be made.