Reader's Letter Of The Day

From CityAM:

Cameron constantly refers to "Paying down our deficit".

How do you pay down a deficit? You reduce a deficit and pay down* a debt.

@CJCHowarth

* In this country you "pay off a debt", but hey, his point stands.

Fun Online Polls: Jeremy Corbyn & The Global Financial Crisis

The results to last week's Fun Online Poll were as follows:

You will/would you vote for as leader of the Labour Party?

Jeremy Corbyn - he'll make Labour unelectable = 41 votes
Jeremy Corbyn - I might not agree with him, but at least he has principles = 28 votes
Jeremy Corbyn - I agree with the majority of his policies = 3 votes
One of the three faceless soft-centre Tory-lite candidates = 2 votes
None of the above = 16 votes
Other, please specify = 1 vote

I think he's got this one sewn up.

Thanks to everybody who took part.
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Something which has been bugging me for years is the Tory notion, subscribed to by the three out of four Labour leadership contenders who aren't Jeremy Corbyn, that the UK has been mired in recession for the last seven years because Labour was running up deficits in the preceding years.

That is the Economic Myth from Hell, if you ask me. Of course Blair-Brown are guilty as charged when it comes to their part in stoking the UK land price bubble and then transferring bank liabilities to the taxpayer, but the Tories have merrily continued this strategy and in any event, the Tories are running far larger deficits than Labour did.

Just as sickening is the Tory notion (again, subscribed to by the other three Labout leadership contenders) that this should be blamed on people now under 25 over-claiming benefits instead of working. Apparently, we can fix the deficit by taking away their benefits; this will magically get them all into jobs; and this in turn will magically put the economy on the road to recovery. That's like blaming a war on dead soldiers and civilians.

But what do you think?

Vote here or use the widget in the sidebar.

Budget fun

The most stomach churning part of yesterday's Budget speech was the Indian Bicycle Marketing at the beginning, suggesting that Labour was the party of high spending and deficits.

The official version reports it thusly:

We’ll also redeem the last remaining undated British Government bonds in circulation. We’ll have paid off the debts incurred in the South Sea Bubble, the First World War, the debt issued by Henry Pelham, George Goschen and William Gladstone.

Osborne actually added a reckless ad lib at this stage, from The Telegraph's live reporting:

"We will pay off debts occurred in the South Sea Bubble, the Second World War, those incurred by Pelham, Gladstone. Those raised by Gordon Brown will take a little longer to pay off."

Which, as Matthew Holehouse points out, is bold, given this government has racked up more [National Debt] than Gordon.

This paints Labour into a nice corner; they can't pillory the Tories for overspending because that's supposed to be their policy.

Those who have absolutely no policies on such lofty matters are free of the constraints of IBM and can get a bit closer to the truth:

"Ukip leader Nigel Farage branded Mr Osborne's statement the "long-grass economic plan", saying: "This Government has evidently failed in its promise to the British people to eradicate the deficit and whilst it took Labour 13 years to double the debt this Government has done it in five."

There are different ways of looking at this, handy charts and tables at Economics Help.
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The only bit of good news in the Budget was that Osborne has cranked up the Bank Asset Tax a bit, even though he's doing it wrong:

“This is a three-fold increase in the bank levy in just four years and once again is anti-competitive for our own UK banks. It will hit UK headquartered banks hardest as it’s a tax on their entire global balance sheets, whereas foreign banks in the UK are only taxed on their UK liabilities,” said EY’s Anna Anthony.

“The constant tinkering with the tax regime for banks in the UK is unhelpful, and in the long-term unsustainable – the industry will definitely be looking for a commitment to a more certain tax environment in the future.”

The Bank Asset Tax is a splendid tax and does not make banks 'uncompetitive' as banks are the very essence of a cartel; but ideally it would only be applied to domestic bank assets or liabilities. Then every country can choose its own rate independently.

Fun With Numbers - The April 2013 Public sector deficit

From The ONS:

• Public sector current budget deficit was £5.6 billion in April 2013; this is a £2.5 billion lower deficit than in April 2012, when there was a deficit of £8.2 billion.(1)

• Public sector net borrowing (PSNB ex) was £6.3 billion in April 2013; this is £25.4 billion higher net borrowing than in April 2012, when net borrowing was £-19.1 billion.(2)

• After removing the impacts of the transfer relating to the BEAPFF(3), public sector net borrowing in April 2013 was £10.2 billion(4); this is £1.3 billion higher net borrowing than the figure in April 2012 (5) with the impacts of the Royal Mail pension transfer removed. However, also removing the effect of the SLS transfer (7) from April 2012 results in April 2013 being £1.0 billion lower than in April 2012.(7)

• Public sector net debt was £1,185.3 billion at the end of April 2013, equivalent to 75.2% of gross domestic product (GDP).

1) Hooray! Sort of.

2) Wow! A negative deficit means that wee Georgie boy actually paid off £19.1 billion of the accumulated public sector debt! Not bad going for a towel folder!

3) BEAPFF = Bank of England Asset Purchase Facility Fund = the entries in the Bank of England's accounts relating to QE.

4) This means that the monthly public sector deficit was reduced by £4.6 billion as a result of this entry. But the Bank of England is part of the public sector, so that £4.2 billion is completely made-up (unless they also included £4.2 billion interest "payable" on the government bonds held by the government as an expense?).

5) Oo-er.

6) Just to remind ourselves of what was reported a year ago:

Comparisons for April [2012] are affected by a number of factors: The April 2012 net borrowing was reduced by £28.0 billion as a result of the transfer of the Royal Mail Pension Plan. Also in April 2012, £2.3 billion was transferred from the Bank of England to HM Treasury following the winding up of the Special Liquidity Scheme (SLS). In April 2013, £3.9 billion was transferred from the Bank of England Asset Purchase Facility Fund (BEAPFF) to Government. All these transfers to government have the effect of reducing public sector net borrowing (PSNB ex), central government net cash requirement and public sector net debt (PSND ex).

The Royal Mail pension fund was more smoke and mirrors. BobE adds in the comments that it was reported back in March 2012 thusly:

Mr Osborne told MPs: “The transfer of the £28 billion of assets from the Royal Mail pension fund to the Exchequer will free it from its crippling pension debts, ensure the pensions of hard-working staff are paid and help to bring in new private sector investment” and "A further £37.5 billion of liabilities will be absorbed into the rest of the state pension system and so will not immediately show on the Government books as debt".

Or in brief - HMT received approx £28 billion up front and spent it immediately, in return for guaranteeing what was at the time set as at least £37.5 billion in debt, in order to make the Royal Mail more saleable from a privatisation viewpoint.

An medja person reporting the H of C statement by the Oik supplied the "missing element info" as a public service..."The £9.5 billion difference between the two figures is the same as adding £365 of debt to every British household".

7) Ah right. So in real real terms, the deficit, i.e. the additional borrowing was £1 billion lower than a year ago? If we keep this up, the accumulated deficit will stop growing in about ten year's time or something.

"Your spouse's credit card spending sees slight dip"

From the BBC:

Your spouse put £12,060 on the plastic in the financial year to April 2013, slightly lower than the amount by which he/she* overspent in the previous year. The amount was just £30 lower than the previous year's total of £12,090. You have slammed the credit card spending as "catastrophically off course" and said it "would take 400 years to balance the family's books."

Following a heated argument about whether "400 years" was a wild exaggeration or actually understating the enormity of the situation, your spouse has promised to stop using his/her* credit and store cards by 2017 or 2018. His/her* spokesman said: "Though it is taking time, he/she is fixing your household's economic problems. His/her* credit spending is a third lower than a few years ago, several whizz bang new electronic gadgets/complete new outfits including shoes* have been acquired and interest rates are at near-record lows, benefiting you and your business."

The cost of his/her* unnecessary shopping sprees in March fell to £1,510 from £1,670 a year earlier, excluding one-off items such as the interest charge on the accumulated debts of £100,000 said the Office for Nagging Spouses (ONS). And that new set of golf clubs/D&G designer handbag* that were in the sales and actually saved you money in the long term.

* Delete according to gender/sexuality.

Vaguely interesting .... or immensely depressing and explaining one hell of a lot ...

The Department for Work and Pensions chose today to unveil its new website and issued a release about it https://www.gov.uk/government/news/we-have-a-new-home-on-the-web

Anyway, a scroll through the new layout at www.gov.uk/dwp  was called for, and whilst doing this on the Home page section for the "great and good"  (no photoshopping was used in the production of the images shown) took a gander at the entry for Chris Last - who in addition to being DWP Director General, Human Resources is also (the first) Head of Government HR Operations.  In the mini blurb on his page it goes on to say that - and this is of course something worth boasting about -

Chris has transformed HR into a smaller, more professional service.

which is surely "a good thing" and yet .....

He introduced a graduate entry programme for HR and now the Civil Service is the largest recruiter of HR graduates in the UK.

Er, say no more ....

Indian Bicycle Marketing: Austerity

Just as a refresher on how this works:

From The Telegraph (a right-wing, Tory-supporting newspaper):

The shock fall in output is a blow for Chancellor George Osborne, who has come under intense pressure over his austerity drive, with most of the government's cuts yet to come into effect.

Mr Osborne said: "it's is very disappointing news and it is a very tough economic situation," but the Government must maintain its austerity measures and make sure "we don't deliberately add to borrowing". He added: "I think if you ask the British people should we borrow and spend more in a debt crisis, I think you would get a very clear answer that would be a disaster for Britain."

From The Guardian (a left-wing, Labour-supporting newspaper):

Analysts embarrassed by getting their forecasts wrong rubbished the official estimate that GDP declined by 0.2% in the first quarter. But a couple of tenths of a percentage point either way would make no difference to the big picture, which is of an economy flat on its back. Output is lower than it was in the third quarter of 2010.

Osborne's central economic gambit – that, by cutting business tax and regulation and convincing the markets he was serious about tackling the deficit, he would clear the way for growth – has failed miserably.

From a superficial reading of these two articles, you might be lulled into thinking that the UK government had actually cut spending - the right-wing press says it and the left-wing press says it, aren't they supposed to say the opposite of each other and leave the reader to make up his own mind?

Nope, because they both support the same oligarchy.

The actual facts of the matter are as suggested in City AM (which has its own agenda - it is propaganda funded by financial services and land owners):

What is most depressing is that the double-dip (if that is indeed what it is) will wrongly discredit austerity, even though the state remains incredibly profligate. The budget deficit in 2011-12 was a massive £126bn, down just £10.9bn from the £136.8bn the year before. The national debt is still rocketing: public sector net debt at the end of March 2012 was £1,022.5bn (66.0 per cent of GDP) compared with £905.3bn (60.5 per cent of GDP) at the end of March 2011. Current spending rose in cash terms from £604.8bn to £617bn in 2011-12.

The OECD says UK public spending was 49.8 per cent of GDP in 2011. Public sector net borrowing remains at a catastrophic 8.3 per cent of GDP. All of this remains utterly unsustainable – yet the public have wrongly been told that the UK “is tackling its debt”. Osborne has been a disappointing chancellor – but not for the reasons cited by the left.

Reader's Letter Of The Day

From the FT:

Sir,

Dennis Leech (Letters, February 22) attacks a piece of conventional wisdom, namely that bigger deficits lead to more debt. However, his argument is simply that the rise in debt will be smaller than the rise in gross domestic product, hence the debt to GDP ratio falls.

There is actually a far more fundamental weakness in the idea that deficits necessarily lead to more debt. This is that, as pointed out by J.M. Keynes in a letter to F.D. Roosevelt in 1933, the country can expand the deficit any amount it likes without any extra debt whatever, and simply by printing money.(1) Milton Friedman made the same point. And as for the idea that money-printing leads to inflation, those two great minds, fantastic as it might seem, thought of that [as] one.(2)

In practice, the latter is what we have done with quantitative easing.(3) The only nonsensical element remaining from QE is to continue counting debt in the hands of the central bank as debt. Those gilts might as well be torn up.(4)

Ralph Musgrave, Durham, UK

1) Printing money, i.e. bank notes, has ultimately the same effect as borrowing money. Bank notes are just non-interest bearing, low denomination government bearer securities. It would make little difference, in the grander scheme, whether the government gave somebody a suitcase with £1 million in bank notes in it, or whether the government issued him with a gilt with a face value of £1 million at a market interest rate.

2) I think there was a typo in the version as published.

3) QE is not actually printing money, it is just converting long term debt ("gilts") to short term debt ("deposits by commercial banks at the Bank of England"). The inflationary impact thereof is largely because this pushes down average interest rates (in the short term at least); the UK government was paying (say) 2.5% interest on the bonds it bought back and is only paying 0.5% on the deposits. So the people who have sold their higher yielding gilts and now hold low-yielding "cash" are looking round for something else to invest in (which leads to asset and commodity price bubbles).

4) "If you don't agree with any of it, why is this your reader's letter of the day?" you might ask. Well, firstly because Ralph is a blogging friend, and secondly because of the last two sentences - it's so nice to see them in print.

Remember: the deposits which the Bank of England has taken from the commercial banks are real debts*, and those have replaced the old debts (the gilts) - it's like you paying off your credit card debt by taking out a second mortgage on your house - so the old debts, the gilts themselves, the bits of paper, now merely serve as a record that one department of HM Treasury (the Debt Management Office) owes a different department (the Bank of England) money. But you cannot owe yourself money, can you?

* Merrily glossing over the fact that the Bank of England now owes a lot of these to nationalised banks, i.e. RBS or Lloyds could withdraw the deposits and use them to repay the soft loans which HM Treasury/the Bank of England gave them as part of the bank bail out of a couple of years ago etc.

Youth unemployment (4)

The coefficient of correlation between youth unemployment and government debts in each country in the 'EU15 + 2' is not particularly high at 0.47, but it is high enough to be interesting. But does one cause the other, or are they correlated with something else yet again?

The Baby Boomers would probably look at it this way round, and claim that today's lazy young people refuse to get off their backsides and find themselves a job, so instead of paying tax they are claiming welfare:I think that the other way round is far closer to the mark. Those government debts have been racked up over decades (no fault of today's youth) and the large leap in recent years was due to the so-called financial crisis, which resulted in additional government spending to bail out older, wealthier people. When austerity measures kick in, it is usually young people who take the brunt (hiring freezes, increased tuition fees etc):Sources:

Youth unemployment stat's from Eurostat.

Government debts from Eurostat.

Fun Online Polls: Scottish independence & eliminating the deficit

There was a late surge in last week's Fun Online Poll, and the final result in the second and final round is as follows:

Which is your preferred option?

Abolish the Scottish Parliament and scrap devolution - 53% (29%)
Full independence for Scotland outside the UK - 47% (41%)

The figures in brackets are the votes for those two options in the first round held the week before. So there was a slight change of heart in the final round, but that is the end of that, the people have spoken.
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The government is bleating on about maybe cutting taxes or reducing government debt but is not actually doing either. If we rule out tax increases to eliminate the annual deficit, then the only option is to reduce spending.

The Public Sector Finances Databank (available here, Excel), tells us total government spending and tax receipts back to the 1970s. Forecast total revenues (mainly taxation but also other bits and pieces) for 2012-13 ar £594 billion (Tab C2) and spending is pencilled in at £715 billion (Tab B1), giving us a deficit and increase in total debt of £121 billion, which strikes me as pretty horrific.

If we assume average price/wage inflation of 3% a year, it is easy to go back and identify the last year in which government spending was no more than £594 billion in real terms, which happens to be 2003-04. Spending in that year was £456 billion, using Excel, 456*(1.03^9)=594, so in real terms it was £594 billion.*

So that's this week's Fun Online Poll. Vote here or use the widget in the sidebar.

* If you are happy to return us to The Dark Ages of the 1997-2001 Labour government, then spending would be about £500 billion a year and there'd be scope for pretty hefty tax cuts as well, we'll deal with that possibility later on.

Ben Gummer's Ten-minute Rule Bill

Ben Gummer MP has proposed sending every taxpayer a statement to show where his taxes go, to put government spending into perspective, as reported in today's Soaraway Sun. Clearly it makes a lot of sense to express spending in terms of £100 per taxpayer rather than just waving around these billions and trillions at national level.

They've produced a sample statement, showing that an average earner on £26,000 pays £6,134 income tax/employee's NIC, £803 of this is spent on old age pensions, £236 on housing benefit and so on.

I like the general principle, but I have a big quibble...

... the statement only shows PAYE (income tax and employee's NIC) deducted from wages (you can check here, using 2010-11 rates) even though these only accounted for only just over a third of all taxes collected (£180 billion out of £530 billion) in that year.

According to the Public Sector Finances Databank for 2010-11, total taxes collected were £530 billion, divided by 32 million employees/self-employed gives us an average tax bill of £16,500 per annum, quite significantly more than the £6,134 which the government The Sun acting on behalf of the government pretends an average (median?) earner on £26,000 pays, eh?

Adding on the figure for Employer's NIC (another £50 billion) would be very easy; VAT (£86 billion) averages out at (say) seven per cent of people's gross wages (or a third as much again as income tax and two layers of NIC); then there's duties (petrol, booze fags, £70 billion) Council Tax, Business Rates (£25 billion each); corporation tax (£30 billion, which is ultimately borne by individuals); £22 billion in income tax collected via Self-Assessment and so on.

Further, total government spending in 2010-11 was £687 billion, minus 'gross operating surplus' (whatever that is) and the deficit was (say) £120 billion, so yer average earner is also being lumbered with another £4,600 in debt on top of the £16,500 tax he was paying/bearing.

If you then go back and rework the spending figures based on £21,100 tax rather than £6,134, it would be more like £2,700 for pensions (not £803), £800 for Housing Benefit (not £236) and so on, which seems more realistic to me (i.e. total pensions spending £85 billion divided by 32 million employees/self employed = £2,700, total nominal Housing Benefit bill £25 billion divided by 32 million = £800).

Then we could include a notional figure for the cost of major tax breaks, so if pension tax breaks are £44 billion a year, that's £1,400 for each employee/self-employed person. If you're a pension saver, that's less than the value of the tax breaks to your pension company (not to you, they are worthless to you) and if you have no truck with pensions companies, that's what the razzmatazz is costing you in extra tax, and so on.

Totally Mismanaged Expenditure

Just to put this all into perspective, according to the Public Sector Finances Databank (Excel, available here), total UK government revenues in 2012-13 are expected to be £594.4 billion (Tab C4), and total managed expenditure ('TME', which includes depreciation) for the year is pencilled in at £714.5 billion (Tab B1), a deficit of [£very large number].

Question: How far would we have to turn back the spending clock to reduce spending to the same level as current tax receipts, i.e. to put an end to deficit spending/bring the budget back into balance?

Click and highlight to reveal answer: Five years. In 2007-08, TME was £582.9 billion (Tab B1), not adjusted for inflation. Adjusted for average wage/price inflation of about 3% a year, we'd have to go back nine years to 2003-04, when TME was £455.5 billion nominal.

EU talks sense - shock.

From the BBC:

The European Commission has set out individual recommendations for the economies of each of the EU's 27 member states and the eurozone as a whole...

The report encouraged the UK government to make sure there was "no slippage from the ambitious spending reduction targets". The UK was also was told to reform its housing market, planning system and mortgage market, as well as to tackle youth unemployment and skills shortages.

The report also called on the UK to increase the supply of childcare and improve the availability of financing to small and medium businesses. It warned that "the UK appears to be at high risk with regard to the long-term sustainability of public finances". It pointed, in particular, to the cost of an ageing population to the public finances.

Dill and OnTheOtherHand over at HPC did a bit more digging and uncovered these gems:

(10) The UK experienced a house price boom in the decade before the crisis. Prices fell sharply after the crisis hit but have since recovered partially and remain at historically high levels. Transaction levels collapsed and have remained very low. The house price boom contributed to the large increases in household indebtedness and unsustainable growth in household consumption in the pre-crisis decade. The collapse in housing transactions drove corresponding falls in receipts on housing transaction taxes, contributing to the worsening of the UK fiscal position.

Weaknesses in the housing market also help explain the UK's high expenditure on housing benefits and high share of the population in state-subsidised housing. The UK has announced initial reforms to its planning system and to mortgage regulation. Reflecting the importance of this challenge to all sectors of the UK economy, there is a case to build on these measures to develop a more comprehensive package of reforms including in the mortgage market and property taxation to address these issues. (link)

and...

A single annual property tax based on current values could avoid many of the problems of the current regime. The regressivity of Council tax and perverse incentives of SDLT could be eliminated. A higher tax burden on more expensive properties would discourage speculative investment and hoarding, reducing pressure on housing supply and helping to discourage bubbles.

Revenue from such an annually recurring value-based tax would be more stable than SDLT since prices are much less volatile than transaction volumes. A value-based tax could also help weaken the link between house price inflation and consumption since post-tax income would be supported by lower taxes during times of falling house prices and held back when house price inflation was high. (link)

I imagine that this would go down a storm with the Daily MailExpressGraph, if they could be bothered to actually read it: "EU plans tax raid on UK homes!" or something like that.

How can you 'fail' if you weren't even trying?

From The Daily Mail:

Osborne 'might fail to pay off deficit by election' because of difficulties delivering cuts: Chancellor George Osborne risks missing his target of eliminating Britain's national deficit by the next general election because of below-par growth and 'formidable' difficulties delivering cuts, a respected economic think tank warned today...

The Lib-Cons have no intention of 'paying off the deficit', their stated aim is to reduce the annual increase in the deficit, as I'm sure the IFS report would have made clear. And it looks as if they won't even achieve that.

Questions to which the answer is "No"

FinancialAdvice.co.uk asks: Would a mortgage cap kill the property market? and conclude thusly:

There is strong talk in the city of a mortgage cap being introduced by the Bank of England with a suggestion that a minimum deposit figure could be as high as 25%. While there is no doubt that introducing a cushion between the value of any property and the funds forwarded from mortgage providers would reduce the chances of a property crash in the future it could also kill the property sector stone dead.

1. Clearly this is nonsense, it would not 'kill the property market stone dead'. In olden times people had the 'luxury' of being able to/having to pay 25% deposits, because house prices were much lower, so it was easier to save up that amount.

2. But let's assume that their underlying assumption is correct, i.e. that it is perfectly reasonable to expect first time buyers ('FTBs') to take out 100% mortgages rather than 75% mortgages. This would also result in higher house prices, so FTBs are assumed to be able to pay 100% of a higher amount rather than 75% of a smaller amount.

3. Now, if young people who would have a big mortgage either way, and have to cope wit loss of income when Mum has kids etc can afford to service mortgages that are at least a third higher, wouldn't this apply in spades to older home-owners who have paid off most or all of a mortgage that was smaller to start with?

4. Methinks yes.

5. Which leads to me to one of my cunning plans for paying off the National Debt of approx. £1,000 billion in one fell swoop, instead of dumping the burden of past spending excesses on future income taxpayers, namely this:

a. Work out total net housing equity after deducting mortgages, which according to this article is £2,900 billion (after deducting o/s mortgages of £1,250 billion).

b. £1,000 billion divided by £2,900 billion is 34%, so we then just allocate 34p of National Debt for every £1 of housing equity (i.e. if your house is 'worth' £150,000 and your mortgage is £50,000, then your share of the National Debt is £34,000). The average extra loan-to-value ('LTV') imposed on existing home owners would average out at 17% (half of 34%), which is a lot less than the extra 25% LTV (at least) which they expect FTBs to be able to shoulder (as well as the future income tax bill).

c. Yes of course you can make infinite tweaks here, like giving credit for people who paid a big deposit and/or have paid off a lot of the original purchase mortgage out of taxed income; not giving a deduction for mortgage equity withdrawal; indexing up the original cost for inflation and so on, in which case the rate might be 100% of the adjusted lower equity amounts, details, details.

6. Apparently 83% of that 'housing wealth' is owned by people aged 45 or over, so this seems fair enough: those who spent it have to pay it back.

7. The DoublePlus Good news is that no future government would dare do deficit spending if at the end of every fiscal year they had to tell home owners that their mortgages had just been bumped up by several thousand pounds. For example, the Lib-Cons are planning on over-spending by £160 billion this year, which equates to another 8.4% of net housing equity (i.e. continuing the example above of somebody who owns a home 'worth' £150,000 with an £84,000 mortgage, his share of that deficit spending is £5,500).

What's not to like?

Paucity of ambition

The government has been increasing public sector debt by three or four per cent of GDP since about 2000 (which is not as bad as it sounds, seeing as GDP was growing by three per cent or so - a form of mortgage equity withdrawal, if you will), which is as much as they thought they could get away with, seeing as they were constantly trumpeting how well the economy was doing (it wasn't doing well at all, obviously, it was mainly fuelled by cheap credit).

They are now making the best of the recession and using it as an excuse for a massive increase in spending and borrowing, which is expected to be nearly ten per cent of GDP each year for the next couple of years.

Anybody who believes that this increase is directly caused by the recession itself is a mug, of course. If GDP shrinks by four per cent, and the average tax rate is fifty per cent, that would only create a two per cent of GDP shortfall, and we have hitherto spent about two per cent of GDP on unemployment benefit etc, so if unemployment went up by a million, that would be another one per cent shortfall. Conversely, in a recession, a lot of things get cheaper, so the government ought to be able to get better value for money, so if they kept real spending constant, you wouldn't expect the deficit to increase very much.

No, my gullible friends, they are ramping up government spending (and hence taxes) like mad because they know it's politically possible to do it during a 'recession' (they've gone just as mental in the USA as well, interestingly enough).

Anyway, I digress. Any sensible policy ought to be about getting the public finances into balance ASAP; they don't even have that ambition; The Badger has now proudly said that they would try and halve the deficit within four years. That's a bit like a burglar asking for leniency and promising to cut down the number of homes he'll burgle in four years' time to half as many as he intends to burgle this year.

Just sayin', is all.

Rabbit, headlights, oncoming train.