In my recent article The Future Economy there were four tables with listings of public service expenditure. For many people the idea of reading through and absorbing or understanding the figures is a bit daunting. The electors generally would not even try to consider it and usually want something that gives them a message at a glance.
Unfortunately it is not really possible to explain the economy, where it has come from and where it is going at a glance. So I am now going to try to explain the economy past present and future as simply as I can.
The Last Labour Government
Gordon Brown as Chancellor inherited a growing economy in 1997 and enjoyed the fruits of an economic surplus until the end of 2001. Then he overspent by £39billion (£39b) and continued overspending every year at a similar level until mid 2007 when he became Prime minister and Alistair Darling became Chancellor. The overspend (or deficit) continued at nearly £37b to April 2008.
Then the World Financial Crash occurred in September 2008 and by April 2009 the tax and other receipts had dropped by £9b. During the year though Alistair Darling had ramped up public expenditure by over £51b so at year end the deficit had increased from £36.7b to £97.5b.
The following year the tax and other receipts had fallen by a further £23b but the Chancellor had further ramped up public expenditure by another £39b leaving the deficit at £158b in April 2010. So let us be clear about this; £32b of the deficit was caused by the World Financial Crisis, and the other £126b was caused by reckless overspending. Ed Milliband is wrong to claim it was all the fault of the World Crisis and nothing to do with Labour.
The Coalition Government
Increasing public spending is easy, and is received with great enthusiasm by the recipients.
Reducing public spending is always against howls of protest by all concerned, especially the unions. The Coalition pledged to clear the deficit by the time of this election.
Some things the government has little control over, such as the rising pension bill as the baby-boomers retire, typically going up at a rate over 5% per annum. EU contributions are rising at about 10% per annum as it spirals out of financial control. The ever-rising population from births, longevity, and immigration needs constantly growing infrastructure and benefits.
This was the situation when the Coalition came to power. During the five years of this government with prudent control of government departments and in particular the reduction of out-of-work benefits the welfare bill has been held constant and people have been forced into employment.
In the years 2011 to 2015 the deficit was £141b, £121b, £108b, £86b, and this year £98b.
As you can see they have not cleared the deficit and there is no way they could have achieved it. I wonder why they made the promise but sadly they are now saying the same thing again.
The Future Economy
Assuming first that the Conservatives are the biggest party in the next parliament and continue the austerity. If Gross Domestic Product (GDP) keeps growing at about 2% per annum and the basic rate of tax stays at 34% of GDP, then the tax and other receipts will be £673b by 2020.
Their pledges of expenditure and cuts will still result in a public expenditure of £821b, leaving a deficit of £148b. If they can get the additional bank tax of £5b per annum from 2016 to 2020 the deficit might be only £121b by April 2020. Which is higher than now and not cleared.
Assuming next that Labour is the largest party in government and increases the public expenditure along the lines it vaguely suggests, then welfare in particular will increase again and most other departmental budgets will rise.
The public expenditure will rise to £848b while tax and other income will be £673b, so the deficit will be £175b. Not only will they not clear the deficit, it will be almost 80% higher than it is now. Worse still the total money owed by the government to World banks will have risen from the present £1388b to a staggering £2137b.
Summary of Economy
The public expenditure is presently higher than we can afford and within a 5-year parliament there are only really three ways to make it affordable. 1. Keep the tax rate the same and severely cut public expenditure. 2. Keep the public expenditure the same and massively increase taxes. 3. Cut public expenditure and increase taxes.
What will not work is the Labour plan of increased borrowing, increased taxes and increased public sector expenditure. The plan of a mansion tax plus raising the top rate of tax, together with increased departmental expenditure will make the problem worse.
The Conservative plan of cutting welfare by £12b, other departments by £13b, and gaining £5b per annum from the banks doesn’t get it done either.
The UKIP plan of doing largely what the Conservatives propose, together with leaving the EU, scrapping the Department of Energy & Climate Change, reducing overseas aid, and introducing a turnover tax on multinational company UK sales will clear the deficit by 2020.
As a spin-off from this we will get our territorial waters back, more competitive farming with Europe, better trading agreements with the World, border controls of immigration, a Veterans Agency for military personnel and £3b more expenditure on both the Health Service and the Military. Lots of reasons to vote UKIP.