Announcing our consumer agenda for government

I have never encountered anyone who understands macro economics or international macro economics. So putting things as you have is far too simplistic.

It’s not to be confused with the government deficit.

The deficit is the difference between the government’s income and government spending. It’s the amount the government has to borrow each year.

Debt is the total amount of money owed at one time, most of which is made up of gilts auctioned by the government. The owner of a gilt gets paid interest until the government pays the debt back.

Borrowing money to cover the deficit adds to the total stock of national debt.

When does it have to be paid back?

In one sense, it doesn’t. Government gilts are issued with a date when they have to be paid back, but at that point the government can just issue new gilts to pay for the old ones—as long as investors are happy to buy them.

What costs money is the interest payments the government has to make in the meantime. About 5% of the government budget goes towards paying interest on the national debt.

Who owns the debt?

Most UK government gilts are owned by British institutions, and some by UK households. They get the interest payments.

UK insurance companies and pension funds own almost a third: about 30%.

The Bank of England owns about a quarter.

Other UK financial institutions like banks own 17%, just over a sixth.

Another quarter of the government’s debts, about 27%, are owed to foreign institutions. That’s called the UK’s external debt, and the interest payments go outside the UK.
Debt-to-GDP ratios

It’s common to compare the value of a government’s debt with what’s called annual gross domestic product, or GDP. That’s the total value of goods and services made in the UK each year.

The government’s net debt was worth about 85% of GDP at the end of May 2018.

Looking back at the last century, 85% is a relatively low ratio, especially compared to the post-war periods.

But compared to the last two decades, it’s relatively high. The size of government debt increased greatly in proportion to GDP around the time of the last recession.

While the size of UK debt has continued to increase in the past few years, other factors have meant that it’s actually become cheaper for the UK government to borrow money. So size isn’t everything.

There’s a debate about what constitutes a sustainable level of debt for a developed country like the UK, and the economic significance of changes in the debt-to-GDP ratio.

And when highly trained economists all disagree, proving that none of them really understands macro economics, what hope for politicians? Very few politicians have any statistical or scientific background.

I read that there have been record winter temperatures in the far north of Scotland. I forget who, but one of our correspondents used to remind us how Scotland was blessed with abundant hydro-electric power which enabled the power companies to maintain a broadly comparable tariff across the country even to the highlands and islands.

East Anglia has been very cold caused by a blanket of thick cloud preventing any air circulation and the rays of the sun from getting through; indoor temperatures have been very low for a long time so I sympathise with others experiencing prolonged cold weather. Time for the Scottish government to raise the winter fuel payment for pensioners perhaps.

Not all Scottish islands are connected to the national grid, see:-https://www.scotsman.com/news/politics/plea-to-improve-grid-connections-to-scots-islands-1-3551210

Long ago, when I was involved with research on electrical power generation from sea waves, our financial modelling identified “small island communities” as ideal early adopters for wave energy. Even back then, we assumed that such communities could only generate their base load power from fuel-expensive diesel generators, as opposed to other sources with much lower marginal costs of generation.

Thank you for the link, Derek. It’s interesting that the report was five years ago and I wonder how much has happened since then.

I would have expected wind power and other renewable technology to offer an economical route to baseload power for off-grid remote communities on a per island/community basis without the need for interconnectors but that would probably be too inefficient. Some serious investment in physical infrastructure will be required in order to join places together.

Unfortunately, wind power on its own is probably not consistently reliable enough without some power storage system to provide sufficient reserve capacity but wave power could be a useful supplementary resource even during periods of low wind force.

It is indeed strange that attempts over the years to eliminate poverty and curb egregious riches, and close the gap between the richest and the poorest, have made little practical difference to their relative positions. Because of their international mobility the super-rich have access to dodges and mechanisms that defeat any government’s attempts to level the playing field as they can re-domicile themselves wherever it suits them. Previous attempts to super-tax the extra-wealthy have failed to make much headway, and direct hand-outs to the poor are a blunt instrument that again does not seem to work.

I suppose we need the ‘good rich’; they have a philanthropic outlook and are socially responsible members of society who do feed down some benefits to the remainder, but it is on their terms, might be discriminatory in its effects, and is an inefficient and unreliable method of redistribution.

While a certain amount of wealth is necessary to enable the country to be prosperous and to invest in successful enterprises, what I personally regard as obscene is the extraction of excessive profits from companies to fund personal indulgence rather than reinvestment. Excessive prices are also partly responsible for poverty and there is a direct connection between high prices and excess profits. We also have to be careful with our judgments in discussions like this because it is too easy for accusations of envy to be thrown at those who challenge the accumulation of wealth.

One can argue forever over absolute poverty and relative poverty, but there is no escaping the fact that poverty is a cancer in society and gives rise to many consequences that cost us all more in the long run. We can’t go back to the days of the workhouse, nor carry on indefinitely with a laissez faire approach which is not humane, but finding the sweet spot in between those extremes has eluded social reformers down the centuries.