Britannia Radio

There’s the mounting debts brought on by Brown’s long-term mismanagement.  We know the scale of that - around £1.5 TRILLION.  

What nobody mentions (and the Treasury apparently doesn’t know) is the cost of servicing that debt each year until it’s eliminated - paid back .  Well now Jeff Randall tells us (and the Treasury!) and it’s here below!

We have to pay the interest charges FIRST otherwise they just add even more to the debt. 

Christina 

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TELEGRAPH 11.12.09

Pre-Budget report: 

The Treasury won't tell us the true cost of this debt disaster

If you thought Alistair Darling's figures were bad, wait until you see the final bill, says Jeff Randall.

The costs of failure are rising. One might be tempted to say that they are going through the roof, except that the roof is missing. It fell in on Wednesday, when Alistair Darling chose electoral expediency over fiscal integrity.

Selecting which costs to include in the failure of this Government is a subjective exercise, but for argument's sake let's use those preferred by Gordon Brown: debt interest charges and social security payments.

At the time of his 2000 spending review, the then chancellor said: "Our promise was to reduce the costs of failure – the bills for unemployment and debt interest – in order to reallocate money to the key public services.

"In the two decades from 1979 until 1997 [the Thatcher-Major years], rising debt interest and unemployment and social security accounted for 42 per cent of all extra public spending and that meant that 42 pence in every additional pound spent was not available to the key public services.

"In the coming three years, unemployment, social security and debt interest payments will account for not 42 per cent but now only 17 per cent of extra public spending."

In the Prime Minister's constellation of self-congratulatory outbursts, this was, perhaps, not among his more flagrant. He was only just beginning the journey from boom to bust, and many of us who were stuck on the coach with him allowed it to pass without much scrutiny.

Fast-forward the video nine years, however, and we can appreciate rather more fully the point Mr Brown was making. The costs of failure are, indeed, crippling. Feeding the debt monster is driving Britain to the brink of ruin. It is gobbling up unimaginable sums. In the pre-Budget report, Mr Darling told us of his plan to borrow another £707 billion over the next five years. This will be piled on top of the state's existing debt, so that by 2013-14, we will owe about £1.5 trillion.

Million, billions, squillions, how much is that? Well, £1.5 trillion is more than Britain's current annual output. Everything we produce in the course of the next 12 months will not add up to £1,500,000,000,000. Norman Lamb, the Liberal Democrat MP, once calculated that one trillion pounds in £10 notes, placed end to end, would stretch to the moon and back 18 times over.

Before the credit crunch, there were some commentators who insisted that debt of this order, whether public or private, did not matter. To save the authors from embarrassment, I will omit their names, but as late as August 2007 (one month before Northern Rock crumbled), a couple of respected pundits wrote on the BBC's website: "Most debt is a sign not of penury, nor impending crash, but prodigiously increasing wealth."

Oh, if only. Their analysis, I am afraid, does not apply to the British state. We are borrowing more because we are becoming poorer. GDP will diminish by 4.75 per cent this year and our debts are soaring. But with an election no more than six months away, the Government is bridging its credibility gap with IOUs, rather than imposing urgently needed discipline.

So, what will be the final bill for all this extra debt? Precise answers are tricky, not least because the Chancellor is basing his borrowing projections on a Panglossian assumption that Britain's economic growth will return to 3.5 per cent per annum in 2011. If Mr Darling is wrong, and recovery is less robust than that (I'm betting on it and so is the International Monetary Fund), the divergence between state income and expenditure will be sharper still.

Nevertheless, even with these unavoidable ifs and buts, a responsible Government should, surely, have a crack at adding up, in Brownian terms, the likely costs of its own failure. It must have an idea of the bills it's incurring.

On Sky News, I put this to Stephen Timms, who is not just the Financial Secretary to the Treasury, but also a Cambridge mathematics graduate. He, surely, would be able to stick a price tag on Mr Darling's budgetary incontinence.

JR: The Chancellor says he'll borrow £707 billion over the next five years. How much will that cost us in interest?

ST: It depends what will happen to interest rates in the future. The Chancellor's set out how he plans to protect key frontline services, schools, hospitals and police and halve the deficit.

JR: If you can predict borrowing, you must have a shot at predicting the cost of all this?

ST: We haven't published forecasts and that would not be a sensible thing to do.

JR: Are you saying that you don't know the cost, or are just not telling us?

ST: We've done the right thing by allowing borrowing to rise just like every other developed country in the world.

Amazing, eh? All that Treasury brain power, but no clue about the costs of failure. Can you imagine the finance director of a heavily leveraged business not being able to give his board a projection for outgoings?  [This is monumental incompetence on a titanic scale! -cs]

It's the season of goodwill, so I asked the accountants at Grant Thornton to do some work for Mr Darling on this issue, free of charge. Mike Warburton, the firm's senior tax partner, made a conservative assumption about likely interest charges, based on a current gilts rate of 4.2 per cent.

"I expect interest rates to rise higher than that," he said, "but we will give Mr Darling the benefit of the doubt. On this basis, the cost of the Chancellor's additional borrowing over the next five years will be £91 billion."

Even in the surreal world of government finances, £91 billion still buys a lot, eg, more than two years' defence spending. But note the word, ‘additional’. This does not include the price of funding Britain's existing stock of debt. Total borrowing costs will be very much higher: £30 billion this year, more than £40 billion next year, and thereafter, who knows? The meter goes into meltdown.

But hang on a minute, we're forgetting the other half of the failure equation: social security payments. Now that unemployment is nearly at 2.5 million, higher than when Labour came in, what is the spreadsheet telling us?

Are you sure you really want to know? OK, hold tight. According to a leaked Treasury document, we will be doling out £193 billion for social security by 2013.

Robert Rubin, Bill Clinton's Treasury Secretary, once said: "I'm working on the supposition that good economics can also be good politics. I'll admit that not everyone believes that."

Not in Britain, that's for sure. This week's PBR demonstrates, beyond doubt, that the whole of Downing Street has been engulfed by what The Economist labelled Mr Brown's "mania for scheming".

It's bad enough that we must pay dearly for his costs of failure. It is criminal that our children, too, will be burdened with a crushing bill.