£1,227,000,000,000 - the cost to Britain which we must now pay
Despite all the foolish talk of the recession nearing its end the articles here show the reality for next year.
“The grim future for the public finances is likely to be underlined this week when figures are likely to show unemployment for the three months to June hitting 2.5 million, the highest total since 2004 and up from the 2.2 million that was recorded for the first quarter of 2009.
Vicky Redwood, a consumer and debt specialist at Capital Economics, forecast that the total would hit 3 million in December and go up to 3.5 million next year before falling back in 2011. . . . .Growing dole queues mean higher benefit payments and less income for the Government from tax receipts.”
As many have found there is a limit to how long one can go on living on credit. Families have found this the hard way and now the same inescapable truth faces the nation. This government refuses to face facts for Brown’s whole life has been built on the fallacy the he can ignore economics The Conservatives, expected to be the next government, are alert to the situation and will hopefully act boldly and swiftly as soon as they can.
Separately I am sending Liam Halligan’s warning that economic power has shifted irrevocably to the deverloping world of China, India, Asia in general, and Brazil. This has implications for our whole future.
Christina
SUNDAY TELEGRAPH
9.8.09
1. IMF puts total cost of crisis at £7.1 trillion
The cost of mopping up after the world financial crisis has come to $11.9 trillion (£7.12 trillion) - enough to finance a £1,779 handout for every man, woman and child on the planet.
By Edmund Conway
The staggering total is is equivalent to around a fifth of the entire globe's annual economic output and includes capital injections pumped into banks in order to prevent them from collapse, the cost of soaking up so-called toxic assets, guarantees over debt and liquidity support from central banks. Although much of the total may never be called on, the potential outlay still dwarfs any previous repair bill for the global economy.
The IMF calculations, produced ahead of the two-year anniversary of the crisis, underline the continually mounting cost. Most of the cash has been handed over by developed countries, for whom the bill has been $10.2 trillion, while developing countries have spent only $1.7 trillion - the majority of which is in central bank liquidity support for their stuttering financial sectors.
The IMF figures also show that Britain has been the biggest of all the spenders on emergency measures to support its financial sector, with its total bill for the clean-up amounting to 81.8pc of its gross domestic product - equivalent to £1,227bn. [This is 17.2% of the world’s total -cs]
Britain's record bill is also unique in that it has also already spent much of it already, with 20pc of GDP having already supported struggling institutions.
The countries that make up the G20 grouping will face a combined budget deficit of 10.2pc of GDP in 2009 ? the biggest since the Second World War. Although the biggest will be faced by the US, with 13.5pc of GDP, Britain also faces an 11.6pc deficit and Japan a 10.3pc one. [That’s the world’s worst three! -cs]
2. It's time for tough decisions on state spending
Telegraph View: The most important task facing the next government is to maintain investors’ confidence in Britain’s public finances and restore those finances to order.
We knew there would have to be a squeeze on NHS spending, but we did not know how tight it would have to be. In addition to the demand created by new drugs and new treatments, and the ageing of the population, there will, as we report today, be another drain on resources: the cost of paying back the money that was borrowed over the past 10 years to finance the building of new hospitals. [As I - and this paper’s business columns - have been highlighting for years -cs]
The system used – the Private Finance Initiative – was trumpeted by Labour as a wonderful new way of minimising the cost of infrastructure, and of spreading payment over a number of years. It now turns out that the technique resembles the kind of fancy financial devices that caused such trouble for the investment banks: "off balance sheet" vehicles which delay the evil day when purchases have to be paid for, but make the final reckoning much worse.
Since 1997, more than 100 NHS trusts have embraced what appeared to be a method of getting something for nothing. Appearances were deceptive: all told, the Government will have to pay the developers involved £60 billion, which is five times the capital value of the buildings that have been constructed. That means there will have to be hospital closures and "efficiency savings" in order to make those payments. This would be an embarrassment were it restricted merely to the NHS – but a similar pattern of debt extends across almost all of Britain's public services. As Chancellor, Gordon Brown embarked on a colossal spending spree. Yet many of the bills were not paid while the economy was growing, but deferred to the future. They now have to be met at a time when the economy is contracting, and the state is already horrendously over-committed, not least through the provision of £1.3 trillion of taxpayers' money towards the bailing out of the banks.
The most important task facing the next government is to maintain investors' confidence in Britain's public finances and restore those finances to order. That will be rendered far harder by the depth-charges Mr Brown has left lurking in the accounts. Yet there will be no hope of pulling out of recession, or indeed of avoiding a deep and lasting depression, if foreign investors decide they will lend to us only at extortionate rates of interest.
Ultimately, the best way to restore our credibility and our finances is to cut back the size and activities of the state – not just eliminating the bloated bureaucracy that throttles initiative and enterprise, but thinking carefully and strategically about what it is absolutely necessary for government to do, and how it can best be afforded. This will be a painful process: despite some overseas precedents, no recent British government has managed to make serious cuts in public expenditure. Even Mrs Thatcher, who was determined to reduce state spending, never succeeded: she merely slowed the rate at which it grew. [This will be the horrendous task for the new government when it is elected. There are no options - this will have to be done preferably before we are made to do it -cs]
Moreover, the savings from many of the measures proposed by the Tories – such as welfare reform – will not be realised immediately. Labour's disastrous management of the public finances, the swelling bill for unemployment benefit and the shrunken tax base mean that there is a possibility, unpleasant though it may seem, that a new administration could be forced to raise taxes to plug the fiscal gap.
This is the position that the Conservatives are inching towards: not just that Labour's tax rises will have to be retained, and inheritance tax reform and the repeal of the 50p tax band delayed, but that further, emergency tax rises will be a necessity. As we also report today, the Conservatives are considering very seriously the possibility of raising VAT to 20 per cent, which, while harming consumption, would at least be kinder to wealth-creators than a rise in income tax or National Insurance. [The VAT story is a scare story designed to produce headlines rather than solutions!
This is not exactly a vote-winning proposition. Nor has its necessity been proven beyond doubt: a sufficiently rigorous shake-up of Labour's bloated client state could well obviate the need for higher taxation, and should always be the first option. But the Tories have at least begun to address the nightmare that the public finances have become, while Labour have not. That is the most fundamental reason why the Conservatives deserve to win the next election
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