The Deficit - the truth - the horrible truth

The Labour party's most senior figures, in defiance of their education and intelligence, keep claiming that Chancellor Osborne's actions are "driven by ideology, rather than necessity". This is absurd. Anyone who argues that rapidly addressing the fiscal catastrophe Labour left behind is anything other than absolutely crucial either knows nothing about global bond markets, or is so blindly ambitious, so determined to close their eyes to the facts, as to be unfit for public office.

The UK's fiscal crisis is of monumental historic importance. The future of the free world may not be at stake as it was in Churchill's day. What is in the balance, though, is the prosperity of the British people for at least the next few decades and our status as a top-ranking nation.

Just before the Budget, we learnt that government borrowing jumped to £11.8bn in February 2011, up from £9.5bn during the same month the year before. This was the highest February borrowing total on record, double consensus estimates. As a result, official public sector debt now stands at £876bn, compared with £729bn at the same time in 2010.

Over the last 12 months, then, this country's "on-balance-sheet" liabilities have risen by £147bn. That's roughly what we spent on the NHS and defence combined in 2010 – and that was merely, during this last year of "austerity", the incremental increase in what Britain has put "on tick".

That's the point – and we should keep making it until it fully enters the public discourse. It is the total debt numbers that Osborne, the Tories and our politicians in general should focus on, not the size of the annual deficit.

The deficit is merely the yearly rise in the borrowing total that we need to service. By 2015, when the deficit is supposed to drop to zero, it doesn't mean that all outstanding debt will have gone away. It means, on the contrary, that total debt will have peaked.

What matters to the finances of any household is the size of the outstanding mortgage, the on-going costs of financing that mortgage, and the prospects of paying it off. Only an economically illiterate fool would claim the family finances will soon be "under-control" because sacrifices will be made and lifestyles reined-in to such an extent that, hopefully, if everything goes to plan, having re-mortgaged every year between now and 2015, that family will then enjoy a single year in which it won't need to re-mortgage.

In 2009, the UK spent £31bn – around 6pc of total tax receipts – on debt interest payments. That's money down the drain. By 2015, we won't have reached, in Churchill's words, some "broad sunlit upland". After four more years of deficits, debt services costs, according to last week's Budget, will by then be £67bn a year – or almost 10pc of total tax receipts. These shocking numbers are also likely to be under-estimates, given the UK's massive "off-balance-sheet" liabilities and the Treasury's benign assumption of future gilt rates.

Public Sector Pension Scandal

Economist Michael Johnson has warned that public sector pensions have become a ‘Madoff-style pyramid’.

In a report for the Centre for Policy Studies Johnson said public sector pensions were ‘collapsing under the weight of insufficient contributions, rising longevity and an ageing workforce’.

He said ‘self-sufficiency is the key’ and unless the issue was addressed Britain faces a ‘societal division’ between private pensions and the ‘disproportionately high pensions paid to high earners’ in the public sector.

Over three quarters of civil servants are in a final salary scheme compared with less than 20% of private sector workers. Currently taxpayers provide around 80% of all public sector final salary contributions and in 2009 the state paid £14.9 billion towards the £19.3 billion costs of the UK’s four largest civil service schemes.

Johnson predicted that in 2016 the taxpayer will have to contribute even more to make up the £10.3 billion shortfall in contributions.

He said the government should start closing final salary schemes in favour of defined contribution schemes. In order to phase this transition in Johnson recommended one of two paths; a ‘brave’ path or ‘cautious’ path.

The brave path would be a ‘watered-down [salary-based scheme] before the introduction of a pure defined contribution framework perhaps in 2020’ or a more cautious path of a career average scheme up to a salary cap of £38,000 with defined contributions above that.

Wind Farms - A load of Hot Air??

There is a direct correlation between a lack of wind and cold weather. According to the Met Office, last month was the coldest December since records began a century ago. Last year as a whole was the coldest for 14 years.

On the coldest days of last month, when the need for power was at its greatest, there was virtually no wind, Britain's 3500 wind turbines were largely idle and almost no electricity was generated by them.

At 5.30pm on December 7, which National Grid says was the moment of the fourth-highest demand ever recorded in British history, wind contributed just 0.4 per cent of the country's electricity needs. The generation system coped – but it includes large numbers of old power stations that will soon be closing. In the future, under the far more wind-based system the Government wants to see, such levels of demand could turn out the lights.

"If, as government plans, we place too much reliance on wind, the electricity system will come under considerable stress, with very high prices, and even unscheduled interruptions, blackouts in the layman's terms,"

To avoid power cuts if the Government does go ahead with a mass wind-turbine programme, it will also need to build large numbers of new coal, oil or nuclear power stations for backup when the wind is not blowing. The cost of providing so much duplicate capacity is expected to dramatically increase electricity prices, with potentially serious effects on consumers and the economy.

Taxpayers' support for the wind industry itself would also rise, as private investors nervous about the lack of wind lose interest in the sector. Wind turbine manufacture has recently slumped and factories have been closed as demand has fallen, prompting calls for more public subsidy.

RenewableUK, the industry lobby body, insisted in response to our figures that the amount of electricity produced by wind had risen by a third in the last year and that electricity generated from renewables was at a "historic high." This, however, is because an increase in the number of wind turbines in operation, and not because of an increase in the amount of win

Britain's Debt

Can you believe that the nation's debt rose by £32.4 million pounds in November. Our national debt now stands at £851 Billion pounds. The interest on this is £1,700 per second yet we still have people complaining about the Government having to make savings. Don't these people realise that the country is in a mess thanks to the wanton spending by Labour, Blair and especially Brown. Sure students may feel aggrieved that tuition fees are to rise, but who do they expect should pay for them, someone else it seems - Welcome to the real world!

Margaret Thatcher - A visionary

Today, Margaret Thatcher’s autobiography, first published in 1993, reads like a prophecy. It shows how deeply and with what extraordinary wisdom she had examined Delors’ proposals for the single currency. Her overriding objection was not ill-considered or xenophobic, as subsequent critics have repeatedly claimed.

They were economic. Right back in 1990, Mrs Thatcher foresaw with painful clarity the devastation it was bound to cause. Her autobiography records how she warned John Major, her euro-friendly chancellor of the exchequer, that the single currency could not accommodate both industrial powerhouses such as Germany and smaller countries such as Greece. Germany, forecast Thatcher, would be phobic about inflation, while the euro would prove fatal to the poorer countries because it would “devastate their inefficient economies”.

It is as if, all those years ago, the British prime minister possessed a crystal ball that enabled her to foresee the catastrophic events of the past year or so in Ireland, Greece and Portugal. Indeed, it is one of the tragedies of European history that the world chose not to believe her. President Mitterrand of France and Chancellor Kohl of Germany dismissed her words of caution. And when Mrs Thatcher was driven from office in 1990, a crucial voice was lost, and a new consensus started to form in Britain in favour of the euro.

This consensus stretched across the entire spectrum of the British establishment. It took in Tony Blair’s New Labour and all of Paddy Ashdown’s Liberal Democrats. The CBI came out for the euro, and so did the trades unions. The Foreign Office was doctrinally pro-single currency. Leading businessmen, such as Peter Sutherland (chairman of BP and Goldman Sachs International) and the fashion-conscious Richard Branson were strongly in favour. The Financial Times, a newspaper whose judgment has been wrong on every great economic issue of the last 40 years, was another supporter.

This consensus was all the more powerful because it contained Conservative grandees. The Britain in Europe campaign, featuring an ambitious young Liberal Democrat called Danny Alexander, now the Chief Secretary to the Treasury, was launched in 1999. Ken Clarke and Michael Heseltine treacherously spoke alongside Tony Blair and Peter Mandelson.

“The price we would pay,” announced Mandelson, “in lost investment and jobs in Britain would be incalculable.” He projected that “outside the euro, there is little we can do to protect industry against destabilising swings in the value of sterling.” Michael Heseltine spoke apocalyptically about the terrifying consequences for British competitiveness outside the euro. Chris Huhne, now a Lib Dem cabinet minister, was scathing about eurosceptics who warned that entry to the euro would cause the Irish economy to overheat – warnings that proved to be all too accurate.

Irishman Niall Fitzgerald, chairman of the industrial giant Unilever, forecast British economic obliteration outside the euro. In a dark irony, it is his native country that now faces obliteration. Those who challenged this consensus were ridiculed. Even William Hague, then leader of the opposition, received this contemptuous treatment. Hague made a series of speeches which, reread today, rival Margaret Thatcher’s in their prescience. He predicted that membership would “lead to huge booms and deep recessions”. Hague chillingly added that “the single currency is irreversible. One could find oneself trapped in the economic equivalent of a burning building with no exits.” He noted that euro membership could lead to a “full-blown banking and financial crisis.”

[Extract courtesy of the Dail Telegraph]

A reminder how we got where we are today!

In China, they have show trials. The Communist Party's disciplinary inspection group doesn't mess about. Those it suspects of involvement in bribery and corruption are ritually humiliated, forced to confess and shot.

The process is often put on video tape. Alleged culprits can be seen crying on cue, apologising to the people and reciting an ancient saying, the rough translation of which is: "One mistake and sorrow for a thousand years."

In Britain, we do things differently. Which is just as well for the nine bankers (seven Britons, one American and a Spaniard) who appeared before the Treasury Select Committee, accused of wrecking the economy. Had the inquiry occurred in Beijing, it is likely that firing-squad rifles would have been loaded even before the chairman's opening remarks.

For, in addition to destroying shareholder value and causing mayhem in the markets, bankers embarrassed the then Labour Government. By their folly, they have helped expose, albeit unwittingly, the ignorance of ministers, flaws in the Financial Services Authority and impotence at the Bank of England. This will never do. What's more, they have established beyond dispute the Prime Minister's inability to pick a winner. Or, put another way, the Curse of Brown.

The Prime Minister's choice of banker to compile a report on ideas for improving public health was Sir Derek Wanless. This is the same D Wanless who was a Northern Rock director when it spontaneously combusted in 2007.

Then came Sir James Crosby, the former HBOS chief executive, who was asked by Downing Street to look at how the mortgage market might be made more effective. More delicious still, he was appointed to the board of the FSA. Yes, the very same J Crosby who resigned after becoming embroiled in the who-said-what-to-whom row over failings of risk management at HBOS.

When it comes to coincidences, the French believe "jamais deux sans trois". And blow me, Glen Moreno was forced out of his job as chairman of UK Financial Investments Ltd – the company set up to oversee the taxpayer's stake in the bailed-out banks – because of his links with a Liechtenstein trust accused of tax evasion.

Had the issues not been so serious, Bankers on Trial would have made a jolly soap opera for enthusiasts of courtroom dramas. As it was, episode one turned into a depressing spectacle. Lord Stevenson and Andy Hornby, both formerly of HBOS, and their counterparts from RBS, Sir Tom McKillop and Sir Fred Goodwin, apologised profusely without ever appearing to have understood what went wrong, how it went wrong, or why it went wrong.

The growth of unsustainable borrowing did not happen overnight. Debt, vast unmissable mountains of it, had been building up on the balance sheets of consumers and companies for years. The banks had it shipped to their customers in pantechnicons. As long as it seemed that interest charges were being serviced, debt-delivery lorries kept arriving. Repayment in full of the monies lent was for wimps. Kidology became a currency of conviction.

One did not need fancy banking qualifications to work out that such an accumulation of credit would eventually destabilise irresponsible borrowers and reckless lenders. A little common sense and a sub-GCSE command of adding-up were all that was required to identify looming disaster.

Banking, when done properly, is a simple business. It requires the banks to ask just three questions:

1. What is the borrower's ability to repay?
2. What is the borrower's willingness to repay?
3. What are we going to do if he doesn't repay?

It's now clear that for much of the dodgy business done in sub-prime markets – mortgages for people on welfare – the answers to these questions were: don't know, haven't a clue and write off billions.

For policy-makers, Bankers on Trial provided a welcome distraction from a rapidly deteriorating economy and the emergence of the D word in polite society. Paul Krugman, professor of economics at Princeton University and Nobel prize-winner, wrote recently, "this looks an awful lot like the beginning of the second Great Depression".

Such a prospect could not be accepted, at least not in public, by Mr Brown. He clung to the fantasy that, thanks to his genius of administration, British citizens were far better placed than competitors to handle a battering.

Bit by bit, however, the credibility of that claim is being pulled apart by brutal facts, not least of which was the Office for National Statistics' revelation that while the number of foreign workers getting jobs in the UK continues to grow (up by 175,000 to 2.4 million last year), domestic unemployment is rising sharply. According to Business Monitor International, a research company specialising in country risk, "Britain is facing an unprecedented fall in its economic world ranking… from 12th place in 2007 to 21st in 2010".

Its report, Britain on the Brink, says the UK economy is sliding out of the global premier league: "Despite enjoying 11 years of growth between 1997 and 2007, the UK ran a budget deficit of 1.7 per cent of GDP over this period, fuelling a fiscal time bomb. Faced with the financial burden of bailing out the banking sector and kick-starting the economy, the budget deficit will swell to an unsustainable 9.3 per cent of GDP in 2009."

The scale of our problems was at last recognised by the Bank of England, which has been way behind the curve in forecasting the speed and depth of recession. Mervyn King, the governor, whose style of communication is that of an Oxbridge professor addressing a village idiot, is preparing the way for unconventional measures to turn back the tide.

"It is at this point," as Orwell wrote, "that the special connection between politics and the debasement of language becomes clear." For when the Bank talks of "quantitative easing", what it really means is printing money: increasing the amount of paper stuff swishing through the economy. You get more, I get more and, in a flash, we'll all be millionaires.

You can see where this is going. From here, all roads lead to Harare.

Media Royal Frenzy

Why oh why does the media go completely overboard just because William proposes to Kate. OK so it's a royal wedding, but does it need so much coverage. Most people do not care that much, all we need to know is the fact that they are getting engaged and married sometime next year. End of - full stop. Instead they even extend the bloody news programmes and roll out numerous nondescript royal correspondants to pontificate over absolutely nothing.