The Real National Debt comes home to roost
BOM readers will be quite familiar with the Real National Debt. It's the measure of government debt that includes all those Enron items the government still manages to keep off its balance sheet (unfunded pension liabilities, PFI, Network Rail, etc etc). And as we blogged earlier this week, when you add them in, you find that the national debt is not £952bn, as officially stated yesterday, but more like £8,000bn. Which is a heart stopping £300 grand for every single British family.
But some people argue that this Real National Debt isn't real debt at all, it's way off in the future, and we can afford to ignore the problem for a decade or two.
The chart above shows why that's wrong. Because the payments arising from that debt are escalating right now. They are a serious problem for us today, not just for our unborn great grandchildren.
We put it together for today's TPA press briefing, using the government's own projections. And what it says is that by 2015-16, on top of £67bn of interest payments we'll have to make on the official national debt, taxpayers will have to stump up another £132bn simply to cover unfunded pensions and PFI payments. So the total servicing cost will be virtually £200bn - over one-quarter of all expenditure and rising fast.
It's a crucial point. And when we listen to all the squawking about George's spending cuts, we need to bear it in mind. It may well be that the cuts are "a gamble", as the pink media says, but not making them would equally be a gamble - a gamble that we can somehow find some other way of servicing our debts without triggering a 70s style meltdown in the bond and currency market. We are being offered a classic false alternative. In reality, TINA will have her way.
So what do we at the TPA make of the spending review overall?
Our briefing is here, and we can't improve on TPA Director Matt Sinclair's summary:
"It’s great news that the Government is going ahead with necessary spending cuts to get the deficit under control and that politicians are finally setting out clear plans to deal with the fiscal crisis. Many wasteful programmes are being cut and that will mean savings for taxpayers now and in the future. Unfortunately a number of measures that would save significant amounts of money while minimising the impact on services haven't been taken, like a freeze in the International Development budget or pay cuts for the best paid public sector staff. Sensible and necessary cuts have been announced today but more can be done to deliver good value for hard pressed taxpayers."We're pleased that the government has more or less stuck with the £83bn of cuts promised in June (trimming it back only slightly to £81bn), and we're pleased to see some real detail on what goes. But there are various saving ideas the TPA and others have suggested that still haven't been taken up.
Plus of course, plans are one thing, delivery another. And delivery is going to be tough, more or less right across the board. For example, while we believe local councils should be able to deliver the level of efficiency savings implied by the 26% cut in their central government grants, they will do so only if they all emulate the flagship efficient councils like Hammersmith and Fulham (see this post).
Moreover, as pointed out in the TPA briefing, the pain of the fiscal squeeze is going to be superimposed on some other major league pains heading towards us in the current decade. In particular, we are facing the huge cost of meeting all those bonkers environmental targets set for us by our political class, which according to analysts at Citigroup will exceed £200bn.
Add it all together, and we're looking at £740bn of pain - half one year's national income:
Nobody can think this is going to be easy. And as Tyler types this in central London he can hear somebody screaming through a loudhailer out in the street - the words aren't clear, but the general thrust most certainly is.
Will we go the way of France? We were asked that this morning, and the general opinion among fellow panelists was that we're not French.
That particular proposition has been tested regularly over the last several hundred years. It looks like we're about to test it again.
PS Oh go on then. We know it's not very grown up, but God, we need something to smile about: