Debt Interest Takes Off 3

Mike Denham Burning Our Money

Yesterday's public sector borrowing stats gave us a sharp reminder just why we need to get on with those spending cuts.

Net borrowing for August was actually up on last year, and year-to-date is only marginally below last year – despite the increase in VAT and throttling back on public investment.

Looking at the detail, the scariest single number is that for debt interest payments. Year-to-date they have increased by £8.1bn, a staggering 73%. Looking at the rolling 12 month total, they are now running at £39bn pa, up by £12bn pa from a year ago (see chart above).

The most recent official forecast for debt interest came with the Emergency Budget in June. It reckoned debt interest this year (2010-11) will be £43bn, and we're currently running a bit ahead of that.

The problem is that even assuming the Comprehensive Spending Review manages to deliver Mr Osborne's forecast cuts, debt interest is still forecast to rise to nearly £70bn by 2015-16. Which will be nearly £3000 pa for every single household.

And that is why there must be no backsliding. So far, the gilt market has been impressed by the coalition's resolve, and has actually cut the interest rate on government debt by about 0.6% since May. But disappointment on delivering those cuts could very easily reverse that, setting in motion the Doomsday Machine we've blogged so often (ie the situation where the government has to borrow more and more just to pay for increases in debt interest).

Mike Denham

Mike is a former Treasury economist who worked extensively on public spending and fiscal analysis during the 1970s and early 1980s. His work included cost benefit appraisal of public projects, analysis of public sector cost inflation and value for money studies.

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http://www.labouronly.com Graham Thomas

Unfortunately spending cuts will not reduce interest payments. Only paying back the debt will do that and this government is actually planning to spend more over their term. To reduce debt the budget must be in surplus, there’s no other way except default. Not a single politician is advocating a budget surplus. Anybody taking bets on the future of sterling?
Hardeep Singh

Such analysis though highly respected by persons such as myself is seen as irrelevant by the general public. The usual smug excuses of “I don’t do politics”, “So what it’s the government’s problem”, so on and so forth. Afterall if the public by and large paid any reasonable attention to such figures and analysis over the last decade we wouldn’t be in the current mess. I suspect that once the misery begins to creep in and the autumn/winter skys grow evermore overcast people will start to take more of an interest. However having said that I did like your representation of government debt like an additional monthly mortgage payment on every household.
Brain D DUNN

Quoting SERVICE CHARGES on the “National Debt” created by a VOTE BUYING Labour Administration, does not do ‘justice’ to the parlous state of the UK economy.
The £60 billion SC hides an £860 billion DEBT, not only do WE have to continue to pay the £60 b annually BUT in order to reduce that amount the CAPITAL DEBT MUST BE REDUCED.
For the “Coalition” politicians to remain coy about HOW the SC is to be paid for by spending cuts, hides the massive problem of REDUCING the 13 year build up of debt by the profligate NU LAB government.
In other words the “new team” has to pay the service charge AND turnround the gross over expenditure of monies we do not have to spend.
The last Conservative Government under Ken Clarks stewardship as Chancellor of the Exchequer built a positive “war chest” of CASH RESERVES, this was in cash and GOLD RESERVES. The whole lot has been WASTED by Nu Lab and an additional £860 billion spent as well. Remember Brown selling our gold at rock bottom market price ?
Unless and until this nation recognises that a SERVICE based eceonomy is a NON STARTER and only an ADDED VALUE based economy can reverse our situation of being a piddling little island off the end of Europe, then we will continue to sink beyond trace as a world power/economy.
It’s going to hurt like hell !
The WELFARE STATE has ended !
Choosing to have children on the State has come to an end.
Benefits Cheques as a life style choice are at an end for ever !
“Affordable” housing (in the meaning it is given today) is a myth. ALL HOUSING is (or has been) affordable by someone, even a £20 million estate. The days of FREEBIE housing have ended.
BUT WHAT OF PENSIONERS the aged, infirm, reliant ?
As ever they will be forgotten in the face of BULLYING Unions and self satisfying selfishness by the strongest, loudest most aggressive, just as now but WORSE.
The “hard times” have not yet begun to be felt, can it be avoided ?
Not by “politicians it can’t !
We have historically been a world leading innovative nation, the people at the forefront of this sector have rarely ever been recognised since Victorian times (remember Mr Brunel ?)We still have a base of VERY CLEVER/ABLE INNOVATORS, some of whom remain leaders in the world they operate. Replace “politicians” with COMPETENT MANAGERS who do not treat their “PARTY” as the priority interest for their actions and we may, just MAY, stand a chance of reversing our slide down the slippery slope of economic suicide.
One thing however is for certain, TRADES UNIONS MUST BE CRIMINALISED FOR STRIKING AND THEIR MEMBERS (along with every “worker”) must accept that the OVERPAID PAST is just that THE PAST.
Realistic/ world related wage packets HAVE TO BE RESTORED before we can become an exporting nation of goods and services in the way we led the world in Victorian times.
Will it happen ?
Check with William Hill for the odds !