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The document discusses disagreements among economists about the causes and solutions to the UK's debt crisis and deficit. It argues that the crisis is more complex than a single narrative suggests, with factors like inequality, banking practices, and economic growth needing consideration. Alternative views are presented that show the UK's debt levels are relatively low compared to other nations and that tax revenues, not overspending, may be more to blame for the deficit.
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Tuc Presentation Bk1
- 1. BUSTING THE SINGLENARRATIVE the debt crisis as just another story – or why are we prey to a single narrative?
- 2. “ We wereon the brink of bankruptcy…” “ You clearly need to make the savings, the cuts and raise taxes...”
- 3. Professor Joseph Stiglitz,Nobel Prize For Economics In 2001, Daily Telegraph 08.09.10 "I think it is likely that the economic downturn will last far longer and human suffering will be all the greater." Professor Paul Krugman, Nobel Prize for Economics in 2008, New York Times 21.10.10 “ The best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997.” THE WORLD’S LEADING ECONOMISTS DISAGREE Professor Christopher Pissarides, Nobel Prize for Economics in 2010, Daily Mirror 09.01.11 “ The Chancellor has exaggerated the sovereign risks that are threatening the country.”
- 4. You can onlyunderstand how big debt is when you compare it as a percentage of GDP
- 5. GDP = Consumerspending + Business Investment + Government Spending + International Trade income The GDP for 2010 is…… £1.435 trillion
- 6. “ Our debtis higher than it’s ever been…” (Coalition Government)
- 7. ...The Maastricht Treaty EU limit on debt 60% of GDP
- 8. OUR CURRENT DEBT– GDP RATIO 64.6 %
- 9. UK net debtis £952 bn Excluding Financial sector intervention , debt is £845 bn* Or 57.1% of GDP! Source: Office National Statistics ( November 2010 ) *This includes £100bn+ of the banks’ debts that is now UK Government debt
- 11. .... our debtis low compared to the rest of the world Source: CIA World Factbook USA 95% CANADA 81% GERMANY 72% FRANCE 77% SPAIN 70% PORTUGAL 87% ITALY 119% JAPAN 200% GREECE187% UK 65% Source: CIA Factbook
- 12. “ The Deficitis caused by overspending…” (Coalition Government)
- 13. INCOME Mainly taxesSPENDING Public services Investment Debt payments Is spending too high or income too low? Government
- 15. Without the recessiontax revenues should have been £100bn more than today. The UK TAX take 1995-2010
- 16. £165bn 1.5% GrowthDeficit Oct 2009 to March 2010 £145bn £22bn
- 17. “ Interest repaymentsare higher than ever…” (Coalition Government)
- 18. Conservative Government Source:Public Finances Databank, ONS
- 19. Our Borrowing is cheap , mainly from the UK and can be repaid over 13-15 years
- 20. The Thatcher governmentpaid the equivalent of £174m per day Thatcher Government www.ukpublicspending.co.uk Debt Interest Payments 1981 1996 2006 2011 Payments(£bn) 13.2 26.7 26.2 43.3 As % of GDP 5.15 3.41 1.97 2.84
- 21. “ We haveto make cuts…” (Coalition Government)
- 22. Is THIS wherethe deficit is?? We don’t pay enough in tax to cover what we spend. Source - Eurostat newsrelease – June 22 nd 2009 Tax as a proportion of GDP (2007 - %) EU 16 40.4 UK 36.6
- 24. The UK isnow one of the MOST UNEQUAL societies in the OECD Inequality THE GINI CO-EFFICIENT – UN MEASURE OF INEQUALITY
- 25. “ What reallycaused the deficit?”
- 26. “… although thecauses of the crisis may have been rooted in the financial sector, the consequences are affecting everyone, and will continue to do so for years to come. ” (Mervyn King’s Address to the TUC conference – 15.09.10)
- 27. Increasing or reducingthe supply of money into the economy through household and business lending artificially inflates or deflates our GDP – i.e. Banks manipulate the flow and quantity of money EXAMPLE: in the 2000s banks pumped between £10-14bn into the economy every year through housing equity withdrawal . Since 2009, banks are refusing to lend and have sucked £15bn out of the economy per year (Source of statistics: Bank of England)
- 28. The contribution ofsectors as a % of GDP
- 29.
- 30. Debt is lowcompared to our history and partner nations Growth plays a key role in reducing the deficit If tax is lagging behind spending, why not borrow short term to encourage growth? What would 3% per year growth for 5 years do to the deficit?
- 31. National debt? NO Current account deficit? Depends on your values - it’s political Economic governance? YES Employment? YES Banking? YES Democracy and public debate? YES
- 32. “ The grossnational product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials.” Robert Kennedy, 1968
- 33. Barry Kushner [email_address]Saville Kushner [email_address]
Editor's Notes
- #2 The Coalition Government is embarking on an unprecedented round of spending cuts. “It is as tough a package of retrenchment as the IMF imposed on Greece, a country on the brink of bankruptcy and twice as tough as the famously harsh measures Canada took between 1994 and 1997. It is three times tougher than Sweden's measures between 1993 and 1995. In British terms, it is immeasurably tougher than what we did after the IMF crisis in 1976 or after the ERM crisis in 1992….No country has volunteered such austerity.” Will Hutton, The Guardian 19.06.10 Are the cuts justified and do the assumptions behind it stand up to scrutiny?
- #6 But we should go back to GDP as well and look at what that is. Actually, it’s a pretty flexible idea and is heavily influenced by the volume and circulation of money in the economy. It is also based on a survey of information on sales collected from: 6,000 companies in manufacturing 25,000 service sector firms 5,000 retailers 10,000 companies in the construction sector. Data is also collected from official sources in agriculture, energy, health and education. Still - in 2008 there were 2.1m businesses registered for VAT and PAYE, which means the GDP survey represents 2% of businesses, and this does not include small businesses with a turnover of less than £60,000. How reliable is this as a measure of economic activity? But the scary bit is this. GDP is all of this multiplied by what is called the ‘velocity of money’ – e.g. how many times a pound is spent in the economy. This is ‘V’.
- #8 In the Maastricht Treaty, negotiated during Margaret Thatcher’s period as PM, the EU set a ceiling of 60% debt as a percentage of GDP. At the time, this was considered harsh. We’re not that far off of it.
- #9 Our current level of debt as a percentage of our GDP is 63% or £903bn. The CG considers this to be dangerously high and threatens the economic future of the country
- #10 Let’s look at the debt, then. Michael Moore’s film about American capitalism showed that the banks had hijacked the American economy and persuaded the government to give them billions of dollars of Tax-payers money - while making it impossible for people to borrow money. Same here. Look at this graph – you can see how much of our debt is made up of money given to the banks.
- #11 Here’s another way of seeing it – as a graph. You can see that our current debt is pretty low. So why do we believe the story that it’s high? The UK has had much larger debts than today, but it has managed to service repayments without any need for severe austerity cuts to the public sector – in fact, while growing the public sector. Experts say that countries are at great financial risk if repayments of this debt are 12% or more of GDP. Our repayments are nowhere near this at around 4%. Anyway – more of that later.
- #12 Now look at other countries’ debts. Pretty random-looking, isn’t it. But look closer. Canada is the model for our public sector cuts – they went through this between 1994 and 1997. But they now have a debt ratio even larger than ours! So even if there was a debt crisis – which there isn’t – savage cuts don’t do anything to help. But look at some countries with debt levels our government is aiming at – Uruguay, Algeria, Ecuador, Yemen, Turkey, Namibia.
- #25 But why? Well – maybe because the banks who corporately control wealth – have as their number one goal the personal and corporate accumulation of wealth. Take money from the public sector, give it to banks. Isn’t that what we’ve been doing? But look at the effects - look at the Gini Coefficient. The Gini Coefficient measures household incomes. The lower the Coefficient, the lower is the gap between rich and poor; the higher it is, the more inequality there is. See it rising? Incidentally, doesn’t this suggest that there is capacity in the economy to raise more money through tax, as wealth and income have concentrated amongst a smaller group?
- #28 Why scary? Because the banks virtually control both the volume and the Velocity of money. They can turn it on and off like a tap. When they wanted to increase their property assets they gave us cheap and fast money to buy second and third homes. After the crisis they want to raise the price of money (which is, after all, what banks sell) so they restrict it and cut down its Velocity. They lend less and charge massive prices for it – some mortgages are priced at 4%, 5% - even 8% above the base rate; some small businesses are offered loans and overdrafts at 15%. Vince Cable is helpless as was Peter Mandelson. This is what it means when Michael Moore say that the banks have hijacked the economy. It’s happened here.
- #32 So – no national debt crisis – and the fiscal crisis depends on how you see things. If you think we ought to cut back public services in order to channel more money to the banks and the wealthy classes and cut tax, then you will think there is a crisis in the fiscal deficit. You may, for example, believe in Thatcher’s famous ‘trickle-down’ policy – that the more money the wealthy have the more ‘trickles down’ to the poor. But if you think that is unfair or inefficient, you will be inclined to think that the crisis is that we don’t collect enough taxes, our growth rates are too small and wealth accumulations are too concentrated. You don’t, incidentally, have to be a socialist to think that – but you do have to put a higher value in public serves than in the banks.