That’s because it isn’t paying off debt, its constantly rolling it over and having to take out more loans to pay for the extra spending.

The extra borrown is just the short term. ie. The difference between spending and taxation.

The real nightmare is the trillions that the government owes to the general public for the state pension. That has no assets. Zero.

Nick

Regarding this post and your previous “worrying figures” post. Can you tell us where all this financing will show up on the governments books? Will all this additional debt have to go through the “UK Debt Management Office” and be issued as Treasury IOUs?

Is the DMO the organisation that you say should go back to being run by the BoE, how would that stop the government running a fiscal deficit?

Having tried to understand the DMO site, I still don’t have a clue how much Joe the UK Plumber and his Hockey Mom are on the hook for.

On the DMO site (“what’s new” tab) it says there will be a sale of £4000 million of treasury gilts on the 13th Nov. As good citizens, should we organise a whip round to support dear old Blightie?

http://www.dmo.gov.uk/index.aspx?page=CGS/CGSIntro

If you get chance this week-end John, would you please knock up a U.K. public debt post; just like this one for the U.S. According to this we hold $291 billion of U.S. Treasury paper; I wonder if we are “in the money” on that lot, with Gordon’s luck, who knows.

http://en.wikipedia.org/wiki/United_States_public_debt

Reply: The UK government has to borrow the £18 billion for Santander, the £37 billion to buy the bank shares, and anything more they lose in nationalised ownership.

Part of the problem relates to the statement, “I wouldn’t start from here”

It’s pretty much irrelevant what’s gone on in the past, the question is how to get out of the quagmire.

What principles do you want to apply?

1. You can’t let inflation get out of hand. We’ve been there before and its very unpleasant. It’s effectively stealling off the prudent to pay for the feckless.

2. We need to keep the economy going.

I’ve a strong reason to believe that the first will be sacraficed for the second.

More borrowing, means more taxes in the future and so will shaft the economy in the future.

More borrowing is just more spending, and inflationary.

More borrowing keeps the economy going in the short term, at the expense of the long term economy.

I propose the following.

1. Cut rates. It’s inflationary, but it’s needed

2. Cut spending. Really cut it. It’s deflationary, so balances out the rate cut. I would suggest 25% in the first year as the target.

We can axe Crossrail, we can withdraw from the Olympics on grounds of fraud, we can axe the NHS spine, the ID card system, the potato council and lots of other quangos.

3. Cut taxes. It’s inflationary, but its efficient. People are better at spending than Brown or even Redwood!

I would suggest increasing personal allowances to the level of the minimum wage, and slowly moving the minimum wage to the level of poverty, (poverty linked to inflation)

Then look at abolishing transactional taxes. Stamp duty on shares and houses. Car tax can go. Simplification is all

4. Increase saving.

We need to move the government pension scheme to a funded scheme. All of them.

So, all future government pension scheme acruals stop. Now. Then all future contributions are paid for directly, and they have to be funded. DC for all.

Pension saving to be made compulsorary until you have enough income to get you the minimum income. If you don’t make it at 65 from all your saving, you get a one off top up of fund to buy the annuity.

Without the savings part, you won’t get investment, and you won’t have the funds to put the banking system on a solid foundation.

Nick