Tuesday, 17 February 2009

The Economy: Like watching a Car Crash in Progress

I have serious fears for the future of my country. In fact I predict that it'll be bankrupt sometime early in 2010.

How does that work, you might ask, given that no-one has yet mentioned the fact. I'll tell you: because not all of UK PLC's debts have been identified, quantified and totalled.

As an example, today it was "discovered" that the government will need to put more money into those PFI initiatives that have gone too far to face the axe. Thats because the PFI contractors are finding it hard to get credit to finance their PFI activities. How that all works in practice (we loan them money to build (say) a hospital, which they then lease back to us while paying off the loan we gave them...) I still can't get my head around. All I can say is that after several interested parties have made profit out of the scheme it looks an extremely inefficient way to deliver a hospital and a misuse of taxpayer's money.

http://news.bbc.co.uk/1/hi/uk_politics/7891475.stm

Another nugget of news is that the CBI reckon the government will need to find another £100-150bn thanks to the depression. This is because of reduced tax revenues and the increased burden of a larger than planned number of people claiming benefit. I expect that figure to grow during 2009.

http://news.bbc.co.uk/1/hi/business/7891514.stm

Its already been widely reported that there is a public sector pension shortfall. Conservatively estimated at around £690bn. I predict that this figure is grossly conservative, because it's based on higher interest rates than at present. Plus, as councils and the civil service start to shed staff to save costs, the draw on the public sector pension pot will grow, so the government's liability in this area isn't restricted to "just" £60bn and will increase significantly. The same goes for the state pension: employers will just shed anyone of pensionable age in order to reduce staff costs as employment law allows it to happen without redress from the employee.
Anyone thinking like me that we'll have a £1Tn pension shortfall by the end of 2009?

http://news.bbc.co.uk/1/hi/business/4273515.stm

As the depth of the depression becomes aparrent, it will become increasingly clear that the figures we know about will increase and there will be other liabilities and bailouts to come to be added to the mountain of national debt.

So financially, the situation looks very bleak for the UK. Certainly public spending can't continue at its current rate, but the government still insist on ploughing on with pet projects like ID cards, the NHS database, ContactPoint, et al.
What should happen with them is like with every other person that faces tough financial times: you cut non-essential spending. They and any other superfluous projects should be stopped immediately, as we're doing fine without them, so they're really not necessary, they're a luxury we can't currently afford. Unless of course the contracts with the suppliers means it will cost us more to cancel the projects that see them through to completion. Nothing would suprise me in government.

I hear the budget has been delayed, so I just wonder what's going to be in it. I'm sure the truth won't be spelled out in the Chancellor's speech, we'll have to pick at the fine print in order to get the full picture. I doubt it will be cheery news.

Finally, just what will happen when the country goes bankrupt is close to or actually defaults on loan payments? That's an interesting point. Will we be strongarmed into new alliances or changes in policy in return for renegotiating repayment terms? It would be an interesting exercise to see where the bulk of our liabilities lies and therefore who would have greatest influence over the conduct of the UK government.

I'm watching 2009 with great interest, but what happens in 2010 fills me with great trepidation. The UK will emerge from 2010 a changed nation.

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