How bad is it Doctor?

I am afraid the prognosis is not good. The FT is reporting that the budgeted borrowing requirement is £175 billion for each of the next two years. That is because government spending has been fixed until 2011, but economic growth has not turned out as forecast. Now let's not get emotional over this. I will do that in a later post. Let us just calmly reflect on what it means.

Government financed activity is going to amount to 48% of the economy according to the FT, the highest it has been for 27 years they say somewhat glibly. In fact it is probably far worse than that. First of all those figures do not take account of the tax redistribution through tax credits which the government nets against tax receipts (on the basis that its net receipts don't include the money given away as a credit, which may seem reasonable to the government but disingenuous to the tax payer).

More importantly the economy is very different from 27 years ago. In 1982, the government owned vast portions of the economy which are now in the private sector, BT, BG, parts of Corus, British Airways, half of BP, the NCB, the railways, the gas and electricity utilities, the water companies, and a whole lot more. How much of this was accounted for as public expenditure in 1982 is hard to tell, but there are clearly substantial amounts of economic management and supervision no longer carried on by the government, and the activities of many research organisations like DERA (Qinetiq) and Amersham International are now clearly in the private sector numbers when they were previously in the public sector.

So on the one hand the 48% figure is probably a net understatement and there are substantial economic activities taken on by the government in 1982 which they do no longer. So what does the tax payer get for all this spending?

Well, more spending on the NHS, but not as much to show for it, although there are plenty of highly paid administrators and the highest paid GPs in Europe.

Then there are thousands of council workers on 6-figure salaries and pension packages, which they are only able to justify by pointing out the bonuses earned by Goldman Sachs bankers and Fred Goodwin's payoff. And lots and lots of public sector non-jobs.

And who will pay for it all? We are just talking about the current spending here, not the extra spending to cover all of the PFI commitments that will have to be picked up, only the 25% of this year's government spending that is not covered by this year's tax receipts. The simple answer is the current cost is paid for by your pension fund, by diligent Chinese peasants and factory workers and Middle Eastern countries whose are assured that your children and your grandchildren will be brow-beaten into paying for the government lavishness and wastefulness that the current generation cannot afford.

Time to consider a fashionable practice of the rich and famous in the 70's and 80's and emigrate?