Phillip Hammond has announced the budget deficit will remain past 2020. The Chancellor of the Exchequer delivered his first and last autumn statement.
It makes more sense, changing the Autumn Statement into a full blown Budget, and just having the review in April. I did notice that what would have been the next Budget, will be just a statement, thus not having to make vague outlines at the start of the #Brexit negotiations.
The Budget Deficit should be lower
The budget deficit should already be lower, but the way ‘all’ UK Governments have run the economy since 1945, has been to concentrate on consumer spending, not on saving and investment. This is part of the problem, there are too many retailers, not enough savers and hence too little saved capital, to increase investment in Capital goods to make UK Plc more efficient and hence more competitive in the world market. This would of course increase tax revenues, and we would be in less of a mess than we are.
Let’s start at the beginning, the budget deficit, is the shortfall in tax revenues against what the Government spends. To offset this, Her Majesty’s Government sells the debt in the form of Bonds and Gilt edged securities, Gilt edged merely means the Government will guarantee to pay you back the principle amount, no matter what. The Debt management office While you hold these bonds, usually referred to as coupons, each six months or year, they pay you interest. They are usually issued for a set period of time, say a year, ten years etcetera. Some of the original consolidated debts (Consols) are open ended and still outstanding from the Napoleonic wars?
Remember the Government does not have any money, nil, zero, all the money the Chancellor of the Exchequer spends is from the tax payer. Or alternatively is borrowed, and has to be paid back, through extra taxes.
Socialists brain washed to think Governments can create money
The number of Socialists brain washed to think Governments can create money is embarrassing, at least one turd in the form of Fidel Castro is no longer around keep trying to peddle their fantasy economics.
This borrowing is the National debt, and is mostly owed to UK citizens, the US has a similar model. By and large the National debt is bought by insurance and pension funds, it is generally not owed to foreign countries.
The current levels of National debt, are not really something to worry about, it would need to be over double the current amount, before it would start to be a real burden. Not that we want it to go higher, the lower it is, the less tax we pay to keep it running, and the upshot of less tax is UK becomes more competitive in the world’s markets.
The National debt first really came into being during the Restoration or 1660s onwards, before that it was the problem for the Monarch. In 1694 with the formation of the Bank of England, meant there was a steady flow of money, and something neat was found to happen. When the Bank of England was formed it leant all its initial offering of £1,200,000 to the Government. Those who had invested, had basically deposited their money in the Bank, the Bank then loaned the money to the Government at 8.333% interest (most books, t’interweb etc say 8% but the figure was £100,000 on the £1.2 million). In the meantime the depositors could of course have access to their deposits, £1,200,000 had been created to spend out of thin air, and with hardly any inflation, or plus 8.333% if one saved ones do$h invested for the whole year. The term win win situation springs to mind.
Needless to say the Government soon spent the do$h on building up the Royal Navy, and a war with the Dutch soon had His Majesty’s Government back for more, so the Bank had a second offering, which of course sold out. By the time of Queen Anne, the National debt was around £36,000,000, an astonishing amount at the time, a few more wars with the French and it ballooned even more. But we did win, well its traditional?
Tax payer money does not increase wealth
In point of fact, there is a problem with the National debt, in that 300 years later it is monies tied up, and not in circulation, this is both good and bad, good it reduces inflation, bad, in that Tax payer money does not increase wealth, it merely circulates around. It is why Gordon Brown caused the boom and bust, he used taxes to fund the finances, which just circulate and make people feel better off, but private monies are made to work efficiently and create more wealth. Less boom, but also less bust, and in that less bust we are better off, because of efficiency gained investing that money, with less boom, but the capital (another word for money) works harder.
Hence my banging on about savings, the higher the savings ratio, the more investment there is in industry and Commerce. Japan had a fantastically high saving ratio for the decades after 1945. Today Japan runs a Trade surplus (not to be confused with a Budget surplus) and hence even after twenty years of deflation, Japan still has a super high standard of living, and the Japanese invest in their own ideas, turning them into the money making products of tomorrow, and why are they making profits and running a trade surplus? Because they are more efficient.
In UK there is a regular gnashing of teeth over small startups being funded overseas, of course there is, we don’t have the spare Capital as individuals to invest. Just this week, there has been a report in the Daily Mail about the amount of debt on credit cards that is currently being run up, 11% increase on last year.
Here is the point, on the face of it there is little harm in this. In fact just like the Budget deficit, it means UK individuals don’t have the spare cash savings, to invest in commerce, industry or trade.
lower chance of creating or investing
The Budget deficit means we pay more tax, and so hinder ability to sell our goods and services. The personal debt means we have a lower chance of creating or investing in that next big thing.
The Budget deficit is manageable and the Chancellor doesn’t feel the need to reduce it more quickly, because interest rates are so low, savings are so low because the interest rates are low and there is a lack of incentive from H. M. Treasury to save.
If May and Hammond want to improve Britain’s Trade performance on the World stage, they have the opportunity to do so, while Sterling is so low.
They won’t, because it is not on the agenda, and they lack the imagination to change. The continued reliance on consumer spending will be maintained. Which will hold UK back, more than any #Brexit negotiations.