Labour's Debt Explosion

When the unelected idiot Brown took over in 2007, the UK's official government debt stood at 47% of GDP. By the end of 2011 it will be 94%, a literal doubling over just four years. Under his incompetent management, the UK will have clocked up the biggest increase in debt of any major OECD economy.

So says the OECD itself in its latest World Economic Outlook (see here Annex Table 32).

But remember: the OECD's debt measure excludes most of our off-balance sheet Enron debt, like PFI and public sector pensions, which roughly double the final total. And it also excludes the trillions in guarantees given to our busted banks, whose most toxic chickens have still not finally come home to roost.

Labour always always burns our money - we know that. But even in Labour terms, Brown is the idot's idiot. Not only will he be leaving us our worst peacetime debt burden ever, he's also given his name to the famous Brown Bottom in the gold market - the time he flogged off our gold reserves when the market was at its lowest level for two decades (see this blog).

We don't know exactly what price he got for our 400 tons, but the market price at the time was below $300. And since the price is now over $1100, Tyler's fag packet says Brown's arrogance and stupidity lost us well in excess of £6bn.

Although admittedly, measured against what he's now done to us, £6bn pales into insignificance.

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More Of Your Cash Wibbled Away

I'll give you £1.5bn if I can wear the Big Hat

Never mind that we are stoney broke, the arrogant unelected clown masquarading as our PM has just blown another £1.5bn of our money in an attempt to buy himself some international status:

"At an EU summit in Brussels, the Prime Minister offered to pay the money into an EU fund intended to help poorer countries to cut their carbon emissions.

The offer will make Britain the largest contributor. France and Germany each promised around £1.2 billion to the EU fund, which will be worth around £6.5 billion in all."

Just so we're clear, Brown has agreed that we will pay 23% of the EU total, even though we only account for 13.6% of EU GDP. In other words, we are paying 70% more than our fair share.

And what is this fund anyway? How will it be spent? How much will get eaten up in the EU bureaucracy? Which wibbletech companies will get the orders? And which African dictator's Swiss account will benefit most? We know only too well what history tells us, but don't hold your breath for answers from Brown.

Meanwhile, the £180m pa tax-funded Met Office has published its latest scare story for Copenhagen:

"Global temperature for 2010 is expected to be 14.58 °C, the warmest on record."

Not one, but two places of decimals. That really is arrogance.

Of course, given enough computers, even the most blinkered monkeys will eventually hit the right answer. But we still suggest you note that prediction for future reference.

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Fiddling While Blighty Burns

There goes our future prosperity

The Pre-Budget Report (PBR) has to be one of the most disreputable documents ever to emerge from HM Treasury - and that's against some pretty stiff competition over recent years.

As we blogged here, it failed on all three critical counts:

• Borrowing - no progess on reducing it faster
• Taxes - higher taxes on jobs and a risky low yielding tax on bank bonuses
• Spending - unbelievably, spending was actually increased rather than cut

But it's worse than simply failing to deliver. The PBR is riddled through with fiddles and outright deceit.

To start with, we have been told that schools, hospitals, the police, and overseas aid will be ringfenced. But there has been absolutely no explanation of how that squares with the overall spending projection. Not for the first time, it's been left to the indispensable Institute for Fiscal Studies to pick apart the entrails, and point out that other programmes, like Defence, will have to be slashed by an implausible 12% in two years, and perhaps 16% by 2014-15. How on earth will that work?

And then, as we blogged here, the PBR's forecasts for tax revenue and welfare spending rest on wildly optimistic assumptions about future economic growth. A realistic projection of the public finances would show a significantly worse picture, implying either much higher borrowing, even higher taxes, or further spending cuts.

We've also discovered the PBR contained a disguised provision to uprate welfare benefits by more than the RPI just before the election, and then downrate them again afterwards. Which is breathtaking cynicism even for this bunch of black-hearted shysters.

The latest twist is that "sources" have "let it be known" the PBR was not the Treasury's at all. The Treasury now claim they wanted to be tougher. They didn't want to increase spending, and wanted an increase in VAT rather than job-destroying NI. But they were overruled by Brown and Balls.

In other words, the government's own experts have disowned the PBR as an outrageous exercise in low-grade politicking.

Unsuprisingly, the markets are losing their nerve. We had always assumed they would give us the benefit of the doubt until George took the controls, but their reaction to the PBR suggests we may not even have that long. Yesterday, the gilt market sold off sharply, amid mounting concern that our rulers are in denial about the need for drastic action. One bond market strategist put it this way:

"UK bond investors should look at Greece, where the bond markets have crashed this week. The bond markets in the UK could crash too, unless the government starts to initiate serious debt reduction policies."

Another said:

“The PBR seeks to create a fiscal fiction that the deficit can be resolved solely by tax hikes on a relatively small share of the population – the few, not the many – and without painful public spending cuts. The revenue forecasts again look over-optimistic, and there are no public spending plans after 2010-11 – only vague forecasts.”

Of course, we can never know exactly what the markets are thinking - they don't even know themselves. But it's a fair bet a lot of players are now thinking what we're thinking: has George got the balls to do the necessary? And even if he has, will Cam overrule him like Brown has just done with poor Darling?

Because it will be tough enough to grip our public finances as it is. But by concealing the true scale of the problems, this shocking fiddled PBR just made it that much harder.

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Customer Service Isn't New.

Gary Vaynerchuk and Tony Hsieh have picked up a lots of plaudits for focussing their Le Web talks on customer service. Deservedly so. But this is nothing new. That they seem so insightful to many people is simply an indictment of the levels to which things have been allowed to fall.

Customer service has always been there. It's encapsulated in the P of product. If you think that your product is simply that which your customer buys from you, you're deluding yourself. They're buying the product/service plus everything that you provide to make the consumption of that product an enjoyable and fulfilling experience that makes them better at doing something.

I once heard a marketing professor postulate a 5th marketing P (for Phacilitating Services) to emphasise just that fact. He was right because his base example of this was IBM's reputation for post-sales service and support in the 60s, but he was also wrong. Wrong because separating it from the product suggests that it's a marketing option you can choose to prioritise or not.

Customer service shouldn't be the centralised, prescriptive provision that all too easily conjures up images of mission statments, faux sincerity and ranks of low-paid transient phone-jockeys. It should be a distributed, pervasive culture in which everybody can fearlessly act on their own initiative to right a wrong or create a memorable interaction. Customer sevice is not an add-on, it's a necessity.

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Way Too Optimistic

The fiscal projections in yesterday's PBR - just like last April's budget - rest on economic growth assumptions that are ludicrously optimistic.

Here is the relevant table from the PBR (click on image to enlarge):

As we can see, GDP growth is assumed to bounce back in very short order to reach 3.25% pa from 2011-12 onwards. Over the five year forecast period from 2010-11 it is supposed to average 3% pa.

Yeah, right. In a world of over-indebtedness, zombie banks, and tax increases, that just ain't gonna happen, boys.

Consider:

1. The average of independent forecasts for more or less the same period (2010 to 2013) is just 2% pa - and that was collected and published by the Treasury itself (see here page 18).
2. Last time we had to tackle a fiscal crisis even remotely like the current one - in the 70s - GDP growth was pretty close to zero for the following five years: in fact between 1976 Q4, when the IMF arrived, and 1981 Q1, when Geoffrey Howe finally completed the necessary fiscal consolidation, UK growth averaged just 0.4% pa.

So what if we correct the Treasury's fantasy growth numbers? What happens to the projected budget deficit?

As we've mentined before, the Treasury's own rule of thumb says that one percent off GDP increases the fiscal deficit by 0.7 percentage points of GDP. Which as things stand comes to around £10bn in cash terms.

But of course, that's cumulative. If GDP growth is 1% pa lower than HMT's forecast, by the end of 5 years, the fiscal deficit will be running £50bn higher than the Treasury forecasts. Well actually more than that, because by the end of 5 years, with all that extra borrowing, government debt will be £150bn higher than the Treasury projects. Which means interest costs will be higher. And even if we assume the government can go on borrowing at 4% (a very heroic assumption), that's another £6bn pa on the deficit - ie the 2014-15 deficit is £56bn higher.

Which means that if we take the average of independent GDP forecasts, by 2014-15 borrowing will not be £82bn as the Treasury projects, but more like £140bn - hardly any improvement at all on this year's £178bn.

And if we take our post-IMF growth experience from the 70s as a guide, borrowing in 2014-15 will be... gulp... can this be right? £228bn (equals (3.0 minus 0.4) times £56bn plus £82bn).

And you know, it could be even worse than that. Because HMT is making some fairly optimistic assumptions about the recovery of tax revenues from the finance and property sectors. Plus, it's assuming unemployment stops rising in 2011 - back in the 70s, our joyless jobless stagnation saw unemployment go on rising for nine whole years.

Right that's enough. I'm off out now to a fiscal workshop under the chairmanship of Evan Davis. Maybe he's got some answers. Or at least, a stiff drink.

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What A Shocker

Labour's final Pre-Budget Report (PBR) was a real shocker. Key points:

• Borrowing - no action to cut borrowing faster than the leisurely pace set out in the April budget, and the Treasury forecasts rest on the ludicrously optimistic assumption that our GDP growth rate will soon return to 3.25% pa; the UK has been left as the developed world's borrowing basket case, and a catastrophic capital flight is that much closer.
• Tax - no action to cut taxes in order to boost growth; on the contrary, the tax on jobs (National Insurance) and other taxes will be increased by £5bn pa (2012-13); the tax on bonuses seems to be the worst of both worlds - given the City's imaginative tax lawyers, it definitely won't raise much revenue, yet it has sent a very negative message to those footlose international financiers.
• Spending - far from cutting spending, incredibily, the PBR increases it - by £5bn pa (2010-11); moreover, there is virtually no detail on how future expenditure restraint will be delivered - it's simply assumed that savings can be found somehow to provide for Labour's "ringfenced" areas (ie schools, hospitals and police)

So overall, they got pretty well everything wrong.

But in reality of course, nobody expected Labour to deliver any sense in this PBR. As we've blogged many times, the financial markets and everyone else who matters wrote them off long ago. The real test will come when George stands up to deliver the real budget next June.

And if George gets it wrong, we really will have to get out.

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World Basket Case? It's Us

When Darling stands up at lunchtime to deliver his Pre-Election Budget Report, he will doubtless repeat the old formula about how they're innocent victims of global circumstance. The reality is that Labour have dropped us into a fiscal hole bigger than that of any other OECD member - including the supposed basket cases of Ireland, Iceland, and Greece.

Here are the OECD's lastest borrowing league tables for 2010 and 2011 (NB to make the chart clearer, we've reversed the sign on the financial balance - ie higher is more borrowing):

Tyler will be spending the day round at the TPA's fortified bunker close to the frontline. We'll be trying to work out what's really going on through the smoke screen, and we'll be posting our conclusions on the TPA's site.

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