Where will the cuts fall

N1AK

cells wrote: »

Is there really a need to get the deficit down to zero?

In short: yes. We currently have a national debt of around 80% of GDP. We'll be spending 3.5% of GDP servicing our debt by the end of the next parliament (based on 5 more years of cuts!).

The financial crash added ~45% of GDP to our national debt. If we keep the debt steady, and there's another financial crisis in 2025 do you think we can plausibly handle a 125%+ national debt with 7% of GDP going in payments?

I've never fully bought into the Conservative rhetoric on how fast we need to cut. I believe we need to get our national debt down to below 50% of GDP before 2025. This isn't an aggressive target, and a lot of it can be done by allowing economic growth to shrink the debt in relative terms, but you need to get the deficit down to nothing (or near as damn it) for this to happen fast enough.

kabayiri

Generali wrote: »

IMHO it is necessary to get the deficit to below 0 i.e. into surplus. The UK's debt is worryingly high with very little spare for when things get bad again, especially given the fact that an aging population will put an increasing (intolerable?) strain on the UK's public finances.

I think we (the public) underestimate the challenge we face.

The primary reason we underestimate it is because the politicians use a soothing narrative to sell themselves back into power. Political pipe dreams.

The problems in the EuroZone have not been addressed; far from it. This region could still have a big impact on our economic growth plans.

Generali

kabayiri wrote: »

I think we (the public) underestimate the challenge we face.

The primary reason we underestimate it is because the politicians use a soothing narrative to sell themselves back into power. Political pipe dreams.

The problems in the EuroZone have not been addressed; far from it. This region could still have a big impact on our economic growth plans.

The size of unfunded liabilities are pretty clear if you look for them. For example, from a highly biased source admittedly:

http://www.if.org.uk/archives/2031/ons-reveals-full-uk-pension-liabilities

The results showed the extraordinary sums that Britain has committed to pay its future retirees. In total, the UK is committed to paying £7.1 trillion in pensions to people who are currently either already retired or still in the workforce.
This is equivalent to nearly five times the UK’s total economic output. Such a figure may be hard to put into proportion, as a trillion – a thousand billion – is obviously a huge number.
If you try to work out what a trillion pounds would look like you get some amazing statistics. A trillion one pound coins arranged next to each other would stretch around the equator over 78 times, and their combined weight would be 105,263 metric tons (or more than ten times the Eiffel Tower). Counting out that many one pound coins, at a rate of one coin per second, would take you 31,709 years.
This figure for the total liability includes private sector liabilities, which are less onerous on future generations because they are all funded. Private sector workplace pension schemes have total liabilities of £1.7 trillion, and this total is likely to decrease over time as so many private sector pension schemes have been closed to new entrants and stopped allowing further accrual by existing members. There is an additional £0.4 trillion worth of liabilities for individual private pensions, but these are also fully funded.
More important are the total government liabilities of £5 trillion. These break down as follows:

• Government employee pensions: £1.2 trillion (unfunded: £0.9 trillion; funded: £0.3 trillion)
• State pensions: £3.8 trillion (all unfunded)

Even if the source is biased, the numbers are correct or at least within the right area of correctness.

The reason that the Government doesn't include these liabilities in the National Debt? They can renege on them so they don't have to include them. That's what will end up happening barring some miracle of economic growth. The Government at some time will have no choice but to fail to pay out what was promised.

Immigration will serve to put off that fateful day but quite simply you can't expect to work from the age of 23 or 25 until 60 or 65 and then expect the state to keep you for another 20 or 30 years.

A man in Harrow aged 65 can currently expect to see his 85th birthday. Given constant improvements in medicines and despite people trying really quite hard to eat and drink themselves to death, we can reasonably expect to see life expectancy continue to rise over time.

N1AK

kabayiri wrote: »

I think we (the public) underestimate the challenge we face.

The primary reason we underestimate it is because the politicians use a soothing narrative to sell themselves back into power. Political pipe dreams.

And the primary reason they do that is because the electorate don't vote for bad news. Why do you think that the conservatives 'know' they're going to cut £12 billion from welfare, 'know' it won't be the elderly that pay, but pretend they don't know where it will come from?

Political parties aren't stupid. The conservatives would completely open about where the cuts would come from if there was a remote chance it would gain them votes.

kabayiri

N1AK wrote: »

And the primary reason they do that is because the electorate don't vote for bad news. Why do you think that the conservatives 'know' they're going to cut £12 billion from welfare, 'know' it won't be the elderly that pay, but pretend they don't know where it will come from?

Political parties aren't stupid. The conservatives would completely open about where the cuts would come from if there was a remote chance it would gain them votes.

It feels like an unsolvable puzzle.

The promises a party has to make to win power seem to be creating the constraints that stop them from succeeding. As you say political parties are not stupid, but they are self-motivated.

I just don't think we can ring fence the big ticket spend areas like NHS and education. We are not being honest about the challenges we face.

Generali

kabayiri wrote: »

It feels like an unsolvable puzzle.

The promises a party has to make to win power seem to be creating the constraints that stop them from succeeding. As you say political parties are not stupid, but they are self-motivated.

I just don't think we can ring fence the big ticket spend areas like NHS and education. We are not being honest about the challenges we face.

Perfectly true IMHO.

Ultimately, economics always trumps politics: once the money's gone, the politicians have nothing left to spend. They can hang around an awfully long time in the meantime of course.

antrobus

N1AK wrote: »

...I've never fully bought into the Conservative rhetoric on how fast we need to cut. I believe we need to get our national debt down to below 50% of GDP before 2025. This isn't an aggressive target, ....

Actually, I think it is.

Based on current(ish) plans the OBR stated in June 2014 that "PSND is projected to fall from its medium-term peak of around 79 per cent of GDP in 2015-16 to just over 53 per cent of GDP in the mid-2030s, before rising to 84 per cent of GDP in 2063-64."

If you believe that we need to get PSND "down to below 50% of GDP before 2025" then you are going to have to cut even faster.:)

http://cdn.budgetresponsibility.org.uk/41298-OBR-accessible.pdf

antrobus

Generali wrote: »

The size of unfunded liabilities are pretty clear if you look for them....

They would be found in the Whole of Government Accounts (WGA).

In the source previously referred to, the OBR has Table 2.6 Reconciliation of public sector net debt which shows that for 2012-13, PSND was £1,185 bn, whilst WGA net liabilities were £1,630 bn.

cells

Thrugelmir wrote: »

Who is going tois alend the UK the money? With debt comes comes the cost of servicing the interest.

Why is the UK's economy going to grow at 3% indefinately? The banks aren't going to pump PPI compensation into consumers pockets for ever.

There's the problem of the trade deficit as well. There's only so many banks, airports, ports, motorways, office blocks, luxury homes to sell. Eventually the UK will be owned by international investors.

As far as I can tell it works the other way around

Government creates a billion pounds which is a debt, then then gets spent on whatever many times over until someone saves a billion pounds into aome commercial banks.

a billion in debt is balanced exactly to the pound in a billion in credit


as far as I can see. There is no limit to how much the government can spend.

of course if the government does too much. Then the credit side people might put up their priced. Too much too fast and credit people will realise they are working for free for a game of musical chairs

cells

Generali wrote: »

IMHO it is necessary to get the deficit to below 0 i.e. into surplus. The UK's debt is worryingly high with very little spare for when things get bad again, especially given the fact that an aging population will put an increasing (intolerable?) strain on the UK's public finances.

Im not saying this is wrong or right. What I am saying is that at least for me it doesn't seem a clear irrefutable fact that deficit spending is a big net negative.

I've heard from both sides and there are good points to be made yet I've sill yet to find a definitive answer one way or another