If you are interested in politics, you are interested in the financial state of the country. Phrases like fiscal policy, monetary policy, deficit, debt, GDP, net ratio, productivity, quantitative easing will be bandied about and, if you are normal, you will think that everybody understands all that – except you, so you will be too intimidated to ask.
You could google the terms, but you fear you might not understand the explanation, so you don’t. Neither do I, but leaning heavily on a little book produced by the Tax Payers Alliance (www.taxpayersalliance.com) which I obtained at the Reform Conference in Birmingham, here’s an explanation of some of the most commonly used terms.
THE NATIONAL DEBT
The fiscal deficit this year will be a over £125 billion; and Starmer piles up more debt every week.
The National Debt is everything the country owes and at the present time it equals the national wealth. It’s like you having a house and car worth £300,000 and maxing out your credit card to £300,000. That is a debit to credit ratio of 1:1, one to one. You wouldn’t do it and couldn’t do it because the banks would not allow you to. But your governments in recent years have been able to do it – and show no signs of caution or slowing up.
TAX
Tax is a free gift from the people of a country to their government. It is in the interests of government that people earn good wages so that they can be taxed, so if a government is wise they make sure that wealth is spread throughout the population. The more people have money, the more taxes the government can take from them.
People who save expect to get a return for their taxes. They want, and have paid for, roads, clean water, sewage disposal, schools, hospitals and so on. But they get little or no choice on where the money is spent. Which of you voted for private jets to fly the Prime Minister to-and-fro across the world? Which of you voted to give more to foreign aid and less to pensioners?
PRIVATE WEALTH
There is far more private wealth in this country than government wealth, because people are more careful with their money. Having said that, there is nothing safer than lending your money to a solvent government. So if people have some money left over after paying for what they need, then they can save it and lend the government their savings. The government loves to get its hands on your savings and all private wealth. They tax every bit of income it produces. Savers are automatically assumed to be rich and therefore, fair game to rob.
NATIONAL SAVINGS
If you have any national savings certificates, or bonds, you have made loans to the government. The interest you receive on the money also comes from the government, but since governments have no money, they only have money they take from their obliging citizens, interest comes directly out of the pay packets of taxpayers who must foot the bill. There is no “government money” and certainly no free money. Everybody pays at sometime…usually you. Pension funds are also big buyers of government debt. They buy it just the same as you might, only in the millions rather than the tens.
If the people in a country are so poor they can can neither be taxed any more nor lend their government money, the government must look overseas for loans. America used to be the place of choice from which to raise a loan, but increasingly now, poor countries look to China. Borrowing from overseas brings higher interest rates and currency exchange problems, so it is best if a government can tax and raise loans from their own people.
FOREIGN LOAN OR FOREIGN AID?
A foreign loan must not be confused with Foreign Aid. A loan must be paid back. Aid is a gift with no repayment date and no interest payments. There is often no audit on how the money is spent, either, nor whose pockets it might have disappeared into.
THE NATIONAL DEBT
The National Debt is not the same as the National Deficit. The debt is the sum total of what is owed, the deficit is the difference between what the government will receive from taxation each year and what it spends. For many years now, all our governments have budgeted to spend more than they know they will receive from taxation. They have been in deficit. Tony Blair’s first years in office were the last where the budget was balanced. Mrs. Thatcher’s government actually paid some of the debt off, but that was 30 years ago and nobody has managed to match her feat again yet.
GDP – GROSS DOMESTIC PRODUCT
GDP means Gross Domestic Product and is the total of all the goods, services and savings of everybody in the country. Sometimes the amount is divided by the number of people in the country to produce average income/wealth per head and then compare one country with another.
CREDIT RATING
Governments have credit ratings just the same as people. If, like Britain, they have always managed to pay back all their debts, they can borrow at lower rates because their credit is good and people trust them. If they have ever defaulted, like Venezuela, then they pay higher rates and have shorter lending periods.
INFLATION
Inflation (the increasing cost of goods) can work well for debtors as inflation takes away the value of the debt (just like your mortgage. At the end of your 20 years of payments the original price of your house will seem laughable compared to its current market value. That’s inflation working for you.) On the other hand, lenders don’t want to lose out, so interest rates may increase to make up for the loss of value.
LARGE PAY INCREASES
A few weeks ago, Sir Keir Starmer gave large pay increases to certain groups of workers, most of them on the government payroll. He had to borrow every penny he gave away. You, your children and your grandchildren will repay that debt – and incidentally MPs get a heating allowance of £3,000 a year for the homes you pay for on their expense accounts.
In cash terms Britain owes over £2.5 trillion. Think how many schools, hospitals, pensioners’ heating bills and road repairs that money could pay for. What hope is there of paying some of it off? The fiscal deficit this year will be a over £125 billion; and Starmer piles up more debt every week. In 2024 you will hand over £102 billion in interest repayments, so, not a chance of any repayments, not this year nor in the foreseeable future.
While you read this article the national debt has increased by £1 ½ million. Oh and the £12 billions per year you give away in foreign aid is borrowed, too. Don’t cry.
Joan Bridge-Taylor
Reform UK Advisor
SEPTEMBER 2024