Sunday, October 31, 2010

The Scale Of The Financial Mess in Context

Over the past week, firstly in a meeting of Progressive Conservatives where Jeremy Browne a right wing Liberal Democrat and Foreign Office Minister in the coalition government spoke and later at a Conservative Way Forward (CWF) seminar where the director of the Institute of Economic Affairs (IEA) Mark Littlewood spoke, the sheer scale of the deficit to me was bought home. The deficit is different to the national debt, as the national debt is what is the total amount owed by the government to various sources such as the gilts market, whereas the deficit is the difference between what the government receives and spends during the year. It is important to note this as over the years such paragons of economic wisdom like Gordon Brown confused the two.

It has been calculated that the deficit is at the monumental level of between £150 to 160 Billion. This massive figure can sometimes be hard to comprehend and thus Jeremy Browne and latterly Mark Littlewood puts it in to context. They calculated that if we abolished the entire arm forces, meaning we would have no navy, no air force, no soldiers and no weapons, on top of that abolish every single police force across the country all those who worked for the police and all their operations and additionally abolished every single school across the country including everyone who worked in the state school system, we would still have a modest deficit. That shows the scale of the task facing the coalition government and why the so-called "cuts" being introduced by the coalition government, which only reduce government spending to 2006 levels do not deal fully with the financial mess the UK is in.

Furthermore for those who are interested in history, the scale of the financial mess we are in is of historical precedence. This deficit is far greater than during the recessions of the 80s and early 90s and even higher than when Britain went cap in hand to the IMF in 1976. The deficit is at a level, which has never before been reached in peacetime in the UK. This was a dramatic transformation for the national finances from 1997 when the national economy was in strong shape with both the budget deficit and the national debt being at manageable levels. It shows the economic destruction Labour inflicted on the UK, not withstanding the financial crisis.

The scale of the deficit also shows that those in the media and in the general public who believe we can keep on adding to our deficit our living in a fantasy world.

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