Wednesday, 20 March 2013

Time to balance the books

I only caught a few soundbites from today's UK Budget speech but that was enough to confirm neither David Cameron or his Chancellor George Osborne has any real interest in budgeting.

I was talking with colleagues today about data. Some people, managers especially, like a quick an easy summary. Did we meet our targets? How are we performing against our key measures?

Others (some managers included) like as much raw data as they can get their hands on. I'm a data guy. I like the quick and easy summaries but I don't trust them unless I can see the raw data and the calculations used to provide them.

So, I spent my lunch hour doing some quick and dirty analysis of my own.

[Warning: reading any further may cause you to distrust your Government!]

Figures taken from the BBC

"George Osborne says the deficit as a share of GDP will fall from 7.4% in 2013-14"

I don't like GDP. I've never understood it or why it is used. But, hey, every day is a learning day...

"Theoretically, GDP can be viewed in three different ways:
● The production approach sums the “value-added” at each stage of production, where value-added is defined as total sales less the value of intermediate inputs into the production process. For example, flour would be an intermediate input and bread the final product; or an architect’s services would be an intermediate input and the building the final product.
● The expenditure approach adds up the value of purchases made by final users—for example, the consumption of food, televisions, and medical services by households; the investments in machinery by companies; and the purchases of goods and services by the government and foreigners.
● The income approach sums the incomes generated by production—for example, the compensation employees receive and the operating surplus of companies (roughly sales less costs)."

Did that make sense? Our UK Government uses all three GDP approaches and some complicated formulas to balance them.

I interpret GDP as follows:
Production: I provide work and services to my employers worth £48,811 a year
Expenditure: My total expenses are £23,613 a year
Income: My total income is £20,000 a year

My GDP can either be calculated as a balance of those three figures or as one of them. (By the way, any thoughts on the dicrepancy between production and income...?)

UK GDP is £1,540 Billion!

Now contrast that with the estimated income for the UK in 2013/14: £631 Billion

Our production capability is far greater than the income our Government can expect to receive. But who cares right, after all, we are capable of producing £48,811 (to go back to my income analogy), so what does it matter if we borrow £3,613?

I've done this myself, borrowed money to pay for College and University courses. Borrowed to buy a car so I could go to work. All in the expectation that I would be able to earn more in future years and pay off my debts.

And that is where my respect for politicians takes a nose dive. They know we will not be earning any more for years to come, some quite reasonably warn growth will be stalled for a decade.

In today's budget Chancellor George Osborne plans to borrow £121 Billion this coming year, and £120 Billion next year.

This money is not being spent on our future. It will not better equip Britain to generate more income, it is simply maintaining a status quo.

I started to have some respect for GDP but I've lost it:

Deficit as % of GDP 7.40%
Deficit as % of Budget expense 15.30%
Deficit as % of income available! 18.10%

George wants you to look at the deficit in relation to GDP. It is a nice low figure. Seven percent, not too scary. The reality is that we need to look at the deficit in relation to planned expense and expected income!

18%! That is a huge amount of money to plan to borrow when there is no reasonable prospect of paying it back. Why are we borrowing this money? I don't know. Do you?

The Government appear to be saying that if we don't spend what they are planning, our economy will go into meltdown; unemployment will soar and we'll all regret it.

I believe this is a lie.

What the Government are not telling us is what they are actually spending the money on, not in the detail that would allow us to decide whether or not we actually want that money spent.

The BBC were asking last week for our suggestions for the Budget. Eighteeen percent of planned expenditure is a lot of money to cut from the economy but the reality is many households have had to cut that or worse over the last few years - and they have managed to do so!

We need a real debate in the UK about every penny Government spends. I'm sure there are a lot of ways we could cut eighteen percent from the budget without shedding a single job. There would be losers but shouldn't it be us that decide? Is the UK a democracy or a dictatorship?

Just in case you're still awake after reading that, here's some more analysis...

Population of UK: 63 Million
Adult population: 48 Million

If we as adult citizens were to be required to pay for our national debt (£1,155 Billion) it would require £24,062.50 per person. That is today. Our Government plans to add to that figure £2,400 each year for the forseeable future.

By the time my seven year old daughter reaches 18 (just over ten years now) and is able to work, her share of the debt could be as high as £48,000.

I am not willing to let my Government continue to store up debt for my children. Something has to change.

It is time to balance the books.

1 comment:

  1. nice i like this blog posts thanks for sharing hope
    you will be post more informative information here.