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Wednesday, 9 June 2010

Rationalising the size of the UK budget deficit

Thanks to ukpublicspending.co.uk it's easy to browse a breakdown of the UK's £661.4bn budget, although it should be noted that the best resource I found on UK public spending is compiled by an American - Conservative blogger and writer Christopher Chantrill - not direct from a UK government source.

Understanding the scale of the figures

Screen shot #3 of SMART budget manegemnt tool
Budget Allocation Tracker
Our public sector budget tool
Journalists often fall back on favourites such as the length of a London bus, the size of a football pitch or the contents of an Olympic-sized swimming pool to help readers comprehend length, area and volume respectively.  Although quite how describing the diameter of the Gulf oil spill as approximately the length of 10,000 London buses will help anyone understand 125km is beyond my comprehension.

So how can I try and explain 661.4 billion pounds in terms that might help the public understand the scale of the spending and likely consequence of any cuts?

Even after the very essentials of running a democracy, e.g. the running of parliament and essential functions of government, (central and local) and protection (police, law courts, prisons and fire services), the government spends an average of £10,000 pounds for every single person living in the UK.

At a stretch of the imagination the country could afford to run a functioning government with basic public protection services and still hand £10,000 to every man, woman and child each year.

According to government figures, the budget deficit - the amount of money we simply don't have, so have to borrow, could top £163bn this year.  Using the same trick, this is equivalent to approximately £2,700 per person.


The bare bones and the £2,700 per person black hole

Of course, bar law and order and a functioning government we would get little else provided for us.  Using the figures from the government budget here's an approximation of where your £10,000 goes.

Welfare and social protection:£1,750
Pension provisions:£2,000
Amenities:£1,300
Healthcare:£2,000
Education1:£1,300
Defence: £750
Transport: £400
Interest: £500
Total:£10,000
Available:£7,300
Deficit:£2,700
(approximate figures only)

1Education is amortised over a lifetime. Of course each child will have their own £10,000 budget, however in this illustration they would still need to pay the above amounts into the appropriate schemes to maintain public services at current levels.

The massive challenge

For me the above figures illustrates the scale of the challenge ahead.  We're over-spending by £2,700 per head of population and there's nothing obvious we can cut.

It doesn't seem outrageous to be spending £2000 per person per year on healthcare, based on the cost of providing equivalent cover privately - for all aspects of healthcare (GPs, dentists, hospitals, psychiatric care, maternity etc).

Even halting public spending on transport and disbanding the armed forces wouldn't quite go halfway to filling the deficit.

Prepare for tax rises

I'm going to make a wild assumption that efficiency measures can trim 10% from the overall government spending.  If achievable, it would save the UK over £60bn per year and bring the total in the above example down to £9,000 per person.  Without underestimating the scale of the challenge to find these efficiency savings, it still leaves a £1,700 per person black hole.

There's so much wrong with my 10% assumption I don't know where to start, for example any government would struggle to push through such swinging cuts in a year, it would take several years at least.  Each year taken would rack up the government's overall debt and therefore increase the amount we have to pay in interest - already £500 per person, per year.

But even if such cuts can be achieved, there's still a deficit to be filled.  Either the economy must grow significantly, or taxes must be increased to the effect of approx £1,700 per person (approx £3,400 per worker), or, as is more likely, a combination of both.

Focus on corporate tax and tax dodgers

Quite why George Osborne made a pledge to give Britain the most competitive corporate tax regime in the G20 against a backdrop of such massive debts is confusing to say the least.

On one hand UK corporations need to maintain a competitive edge in the world market place in order to grow, and economic growth is one way out of our debt crisis.

But why do we need to be the "most competitive" of industrialised nations?  Why not average? Why not aim to keep the corporation tax regime simply "competitive"? And what about the corporate tax dodgers?

Spinning a low corporation tax regime as an effective method of cutting tax avoidance by large corporations is akin to throwing in the towel and admitting defeat.  Why not start by attempting to close the loopholes?  Investigate the banks and tax advisers who create these schemes... Or would a conflict of interests arise here?!

In any case if this really is a government aspiration - to have the most competitive corporation tax regime in the G20 - why not keep quiet on this aim?

If the public will be expected to stomach the double blow of cuts to public services and tax rises (in the short term at least) then surely we'd all find this just a little easier to accept if we felt that large corporations and fat-cat bankers were being squeezed for their share.

Wednesday, 2 June 2010

Surrey Heath after the fire

Last Friday I went back to the heath after reports that the fires I reported on earlier this month were still burning.
I did hear occasional shells exploding but that's nothing out of the ordinary as the area is used as a military firing range.  Smoke I saw on the horizon turned out, after a 20km wild goose chase on my cycle, to be a large garden bonfire near to Pirbright!
And finally since I was wearing a GPS tracker at the time, here's a plot of part of what turned out to be a 55km bike ride (spot the mad loops near Donkey Town)!
Image Copyright Google : Get Google Earth here