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The price of inequality is too high.
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nickle
Posted: 27 October 2011 09:33:14(UTC)
#31

Joined: 15/09/2011(UTC)
Posts: 62
Most of the debt will be inflated away. It is too high and Brown has his share of the blame although it goes a lot further back than that.

Aside from inflation / default, growth is the only way to pay all the debts. Growth which raises incomes and tax revenues can eventually pay a large part of the debt.

===============

No and no.

Lets look at the inflation bit first. For that we need to know what are the liabilities that have accrued, and whether or not they are inflation linked or fixed rate. If they are fixed rate, then the government can effectively steal the value of money from the debt holders. (Pensioners etc). If the liabilities are inflation linked, they can't.

All numbers are present values

1. Gilts. 22% are inflation linked. The rest are fixed rate. Inflation will mostly work. 1.05 trillion
2. State pension - inflation linked - 2.4 trillion
3. Civil service pension - inflation linked 1.3 trillion
4. PFI 400 bn. Almost all have inflation kickers where the lender can convert to inflation linked at their choice. They own the option
5. State second pension. Inflation linked. Another big number, but its hard getting the info out of the government
6. Nuclear decomissioning. The government has taken money up front, in return for cleaning up. That's effectively linked to inflation
7. Guarantees for state second (old and current) pension schemes. Again massive and RPI linked. Most of the 'fully funded' schemes have large black holes. Fully funded is what they should be, not where they are now.

ie. Bar a bit of gilts, the vast majority of the debts are inflation linked. It's not a solution.

Next is the growth bit. Draw a boundary round the government. Income coming in, expenditure going out. Deficit is the difference. 150 bn a year now.

So when the government says growth will solve its problems, it really means that it needs growth in tax revenues to reduce the deficit. Also be careful because they are economical with the truth in another way. Deficit for them means structural deficit. ie. They still intend borrowing.

So two lies. Growth - got to be good - real meaning more tax revenues. Deficit - not all of it.

So who is going to provide the growth in taxes? The implication is that its people on benefits going back to work that will solve the problem. However, do a bit of a calculation. Those on benefits tend to be low skilled. A reasonable assumption is that most of them will end up on min wage jobs. So the growth comes from not paying them benefits, and getting tax from them. Min wage earners pay 2.5K in taxes. Say 12K in benefits (HB etc included). Round it up, 15K. That's assuming no costs getting them back to work. So for each million of the 2.5 million that go back into the work place, its 15bn off the deficit. So we would need 10 million unemployed to start work, to get the deficit under control. Yeah right. It's not going to work.

So that means the rest of the money comes from existing current taxpayers, or future taxpayers if they go for lots more debt. That's the current plan.

The consequences is that it just means a bust - like Greece - with Greek style consequences.



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nickle
Posted: 27 October 2011 09:35:00(UTC)
#32

Joined: 15/09/2011(UTC)
Posts: 62
n the wake of August's London riots, some commentators have linked the youth unrest to budget cuts

===========

There have been no cuts. Spending is up in real terms over the last two years. Time for another excuse by the left.
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Jeremy Bosk
Posted: 27 October 2011 10:17:39(UTC)
#33

Joined: 09/06/2010(UTC)
Posts: 1,316
nickle

No budget cuts? Which planet are you on? Some cuts in central government spending have still to be implemented but the knock on effects of cuts to the central funding of local government are here already. Bus services withdrawn, branch libraries shut, opening hours reduced at the survivors...

The paper on the correlation between austerity and social unrest covered the the whole of Europe from 1919 to 2009 and did not refer solely to the August riots in the UK. Please at least look at what is being said before commenting. Or I will have to label everything you say as another excuse by the "so far right it's out of sight".

A major kind of inflation that the government can impose on its bondholders is through a lower exchange rate. A high proportion of gilts are owned by foreigners who will sell their bond holdings at a loss to avoid even worse when translated into their own currency.

Governments can and do renege on their promises. The current manipulation of the state retirement age is a prime example. If you can't afford to pay pensions, simply raise the pension age and diddle people out of a few years retirement. By shortening the time people receive their pensions you cut the bill.

There are a million other ways for government to dodge its responsibilities. Some of the early PFI deals turned out to be so badly negotiated by government that the commercial partner was forced to disgorge some of its ill gotten gains by the simple threat of no future government business. Burma Oil was a company due compensation for having its pipelines blown up in World War II. After dragging out the negotiations for several decades the government was about to lose a court case and be made to pay up. So it changed the law retrospectively to get out of a £20 million bill. That is why sovereign debt is not like household debt.

Structural deficits are the ones that matter because cyclical ones take care of themselves.

Your idea of the size of benefits seems very much exaggerated. A single person aged 25 + on contributions based jobseeker's allowance receives £64.30 a week. Under 25's apparently eat less and pay less rent because they receive only £50.95 a week despite paying the same NIC while in work. Those on income based benefit receive more or less (usually less) according to various conditions such as whether they have savings over £16,000. £3343 is a lot less than your £12,000. Rents for a two bed house in this part of the world are £450 per month or another £5,400 a year in housing benefit. Which is an exaggeration because single people are told to move into cheaper shared accommodation and given HB as if they have. Unemployed under 25s are even forbidden to live at the seaside - as many otherwise would during winter, taking advantage of out of season holiday lets at low rent.

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nickle
Posted: 27 October 2011 10:25:21(UTC)
#34

Joined: 15/09/2011(UTC)
Posts: 62
No spending cuts?

http://www.johnredwoodsd...did-go-up-its-official/

You have to ask when overall government spending is going up faster than inflation, what you mean by spending cuts?
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nickle
Posted: 27 October 2011 10:54:48(UTC)
#35

Joined: 15/09/2011(UTC)
Posts: 62
A major kind of inflation that the government can impose on its bondholders is through a lower exchange rate. A high proportion of gilts are owned by foreigners who will sell their bond holdings at a loss to avoid even worse when translated into their own currency.

=============

Government debts are more than just Gilts. The primary holders of Gilts are UK banks (capital), UK pensioners (annuitants and pension funds), and insurance companies. What do you think the effect of inflation has on those 'owners'?

What about the other debts?

For example, I give money to a bank for my pension, does the bank have a liability? Yes.
If I give (ok, forced to give), money to the government for my state pension, does the government have a liability? Yes. Both in legal and in practical terms.

On the state pension age - exactly. The point is they are going to default.

1. Raise the age - 5% for each year its raised, plus the extra contributions for nothing extra
2. CPI not RPI - about 10-15% off
3. Next? No increases
4. Means testing

They are going to default. Pure and simple. They already are defaulting.

On the civil service pensions, what the Unions haven't worked out is that the extra contributions aren't going to go into a fund. The liability and problem remains the same. It's just as bust as it was before. It's just forcing more money out of the Ponzi victims.

Why is it that you think all unemployed are under 25? Do it for others. Or how about if I exagerate the other way round and cherry pick the 104K a year HB cliamant, plus 5 kids (of different sexes to get the HB). Around 125-130K a year.

Actually you're making the point for me. If I use your figures, 8743.6 in benefits. 2,500 in taxation on min wage (and no benefits). 12,243 a year. Round that up, and its 13 bn out of a deficit of 150 bn. Getting them back to work doesn't solve the problem. It dents it.


Structural deficits are the ones that matter because cyclical ones take care of themselves.

No they don't. The problem is that it all depends on what the size of the actual debt is. If that is large, the deficit is never closed, and you have to default.

So real UK debt, 7,000 bn. Government income 550 bn. Care to calculate the gearing? Remember banks aren't allowed to go over 10 times now.

On top of that 7,000 bn, there is the cost of bailing people out in retirement who have no savings. About another 12 bn on top, at current benefit levels.

So you have to ask, what's going to give? Pensions is the main won. More defaults along the lines you've mentioned. Plus lots of real cuts. We haven't had any cuts in the level of spending - yet. Here you have to question where the money is going, since there are cuts in services. It's just the cost of what's left that's escalating. So again, you have to be clear about what you mean by cuts. Cuts in services - yes. Cuts in spending? No. Neither in absolute or real terms.

So using your numbers, its far worse than the dire situation I referred to
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Robert Court
Posted: 27 October 2011 13:07:30(UTC)
#36

Joined: 22/08/2011(UTC)
Posts: 606
Shoot me down in flames if you like but one way we could bring down inequality is to make state pensions means tested and gradually reduce the state pension to a minority of people (say the lowest earning/wealthy 20% instead of 100% of the population).

I know this is illegal at present and I'd not wish those already in receipt of pensions to suffer more than they are already likely to and I also know that private pension schemes are now letting down a lot of people but it would mean that there would be a huge structural change if all but the genuinely poor lost all state pension entitlement.

I also don't know how it could be done fairly and in such a way that would avoid many people then deciding NOT to make any personal provision for their retirement if they believed it would be impossible to get much more than the present state pension and so 'why bother?'.

I already know people who do not bother to make any personal provision as they would lose any possibly entitlement to things like housing benefit if they are slightly better off than by doing nothing; that is VERY sad and immoral but people react to the reality of their situation and it's a logical economic decision on their part - why scrimp and save to be no better off in retirement?

Obviously for very rich people the state pension is a small bonus and maybe a whole month's state pension would only equate to a day's spending money on frivolities; however they have also contributed during their working lives but really only to existing pensioners as sweet fanny adams went into any form of personal pension pot as the N.I. revenues have always gone out faster than they have ever come in.

Maybe we could start off by saying anybody with a retired income of more than £104,000 net per annum excluding their state pension would lose the state pension; I'm sure if I had £2,000 per week to live on I'd not miss an extra £100 too much and my standard of living wouldn't suddenly evaporate.

What do you think?

Should state pensions gradually be done away with except for the bottom 20% of society if most of us are capable of looking after ourselves better in the future?

Maybe, as one poster previously suggested, we should scrap NI altogether as it doesn't really serve the purpose it was designed for and we should just make taxation as simple as possible with zero loopholes and a more positive culture where we encourage individuals to make their best contribution possible however little rather than allow a huge underclass grow angrier and angrier the more they feel disenfranchised.

Most middle income to rich people believe in private education and private health and being as independent of the state as possible; why not encourage this and provide free health care and education and state pensions for those who really need it - i.e. free state services not all of us but just those who cannot afford the choice?

As long as those who make use of private education and health etc still contribute by means of their taxes to those less well off then we'll have a less unequal society as all will pay for these services even though less will use them and the quality of both state education and health services should improve with more money per capita to spend on their clients.

What I am saying is that I believe its ok for rich people to pay TWICE - once for a public service they don't use and once for the private service they use; that seems fair enough to me as those rich people can always fall back on the 'free' services if they fall on bad times. which some surely shall!
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nickle
Posted: 27 October 2011 14:11:08(UTC)
#37

Joined: 15/09/2011(UTC)
Posts: 62
So you want the rich to pay for everything, and get nothing in return?

So what is the threshold at which people become rich? Ask anyone, and its someone richer than they are.

To fill the black hole in the government finances, rich is around the 12K a year mark. They are so far up the swanee.

The problem is that at some point the rich leave. Then you really are stuffed. They are the ones that are creative enough to generate the wealth.

So what's a fair multiple. 10 times the poorest level of taxation? 100 times, 1000 times? Plenty of rich people are paying 1000 times the tax of a poor person, and you want to deny then anything?

How about this. Everyone gets equal treatment from the government. Fair - yes.

Here's an even simpler solution for council tax.

1. Abolish it.
2. Increase income tax.
3. Every council gets a pro rata (per head) allowance.

That way the rich areas (who pay more tax, subsidise the poor). It's then down to the councils who want to do more, to get better value for money. Cheap to administer too. No Barnet formula. End of each money, 15% of income tax goes to councils.

As for falling back, that's been banned in the NHS hasn't it. Go private and they force you to pay private when you try and fall back.

None of your proposal increases wealth. It's more likely to destroy wealth.

What's needed is more work, and more savings. How do you arrange that when the government is taking everything that isn't nailed down or hidden, and regulating the hell out of business.
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nickle
Posted: 27 October 2011 14:25:25(UTC)
#38

Joined: 15/09/2011(UTC)
Posts: 62
Here's another little idea for you.

Everyone who takes their kid out of the state education system gets 4,000 pounds a year for doing so, so long as it goes towards education of that child. ie. A Voucher.

There you go, more money for the state education system.

See if you can work the logic out on that one.

LB

Hint. The costs of educating a child in the state system is 6,000 a year
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Robert Court
Posted: 27 October 2011 15:26:41(UTC)
#39

Joined: 22/08/2011(UTC)
Posts: 606
nickle

1.) I am all for the choice to have private education but I AM against the voucher system; if I choose to educate a child privately then I should also contribute to the state system and if the state has one child less to educate plus the state should have more money per child in the state sector and be able to improve standards at least 'theoretically'.

2.) Per capita payments to local councils means that densely populated areas get much more per square foot when they already have economies of scale. Governments often decide to help rural areas that need better infrastructure and even help with uneconomic public transport etc. Most labour migrates to where the work is but we can't all move to London even if we wanted to.

I'm quite in favour of a local income tax (like a USA state tax - they pay both state and federal taxes) but then where do you get taxed if you work in county 'x' and live in county 'y'? Central government would still need to top up the local taxes of poorer areas if they wish to improve amenties (roads, power supplies etc) to attract private industry away from some overcrowded cities and help reduce unemployment where labour seems less mobile.

Let's assume the worst and hope for the best.

Assuming the worst and a future government defaults on its promise of state pensions, what can we do?

Do we just give poor retired people some kind of means tested benefit in lieu of a pension or do we give everybody a reduced pension but hope that the tax better off people even pay once retired in effect pays back their reduced state pension?

I don't know what the answer is, but if the government cannot afford to deliver what it has promised (which seems more and more likely) something is going to have to give and what that is we'll need to know if people are to have any input into how they'll fund or be funded if they ever live to the new future retirement age of 89 years and six months!

I'm already going to have to wait until I'm 66 years old to get a state pension (it goes up to 66 just as I reach 65) and by the time I'm 66 Lord only knows what age I'll have to be to get a pension....... but, on the good side, by then MAYBE the Greek crisis will be over!

Ha! :)
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Jeremy Bosk
Posted: 27 October 2011 15:35:40(UTC)
#40

Joined: 09/06/2010(UTC)
Posts: 1,316
I don't like the idea of making any service available only to the poor because the better off who must pay the bills will see no advantage to themselves in maintaining it. That already explains why slum areas have inferior schools and other services. The tax paying middle and upper classes don't live there, don't see the problems and don't care enough to find out or cure them.

I worry about cuts in services because many of those services are valuable. Agreed that government spending has not been cut in absolute terms. How much of that is due to increased unemployment?

A lot of the increased spending must be due to inflation. Some of the inflated cost for government is due to the inflation proofed obligations nickle listed earlier. Some of it is due weak Sterling which is encouraged to make the UK more competitive in internationally traded goods and services.

What holds us back is lack of corporate confidence. Companies are sitting on cash piles unwilling to invest in an economy dying the death of a thousand cuts. Get the economy going again through deficit spending and corporate investment - including from overseas - will follow. This will also attract portfolio investment and raise the exchange rate - cutting inflation. More people in work means higher capacity utilisation for manufacturing and service industries - cutting inflation and cutting government expenditure. The less destructive way.
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