Tuesday, July 15, 2008

Britain Rebuked for "Excessive Borrowing".

The European Union are to begin disciplinary proceedings against the United Kingdom for the latter's breach of its borrowing regulations [1]. Under the European Stability and Growth Pact, the amount of money any country can borrow is 3% of its national earnings, as defined in the Maastricht Treaty. This action is tantamount to a formal warning that Britain should curb its borrowing or cut spending. Now the latter is a real bugbear. It is well-known that the United Kingdom has the most generous benefits system in the world. This year the government has needed to borrow in excess of £50 billion ($100 billion) to prop up this leviathan, along with all other "expenses", such as the NHS, and the various wars its armies are involved in.

The present system is simply unsupportable, but which government would admit that? There are apparently over 3 million Britons without work in Britain, and we need 1.3 million migrant workers to "do the jobs they won't do" as it is often phrased. The solution seems simple doesn't it? However, it is not. In order to cut public spending, a complete revamping of British society is necessary, and with costs for the status quo rising against a backdrop of inflating prices for fuel and food, something will give. By default if not by decision, the system will give-way, and the E.U. is simply telling us that this is the case.

We "lost" most of our manufacturing and coal-production and are dependent increasingly on imports of food and fuel, even coal. The North Sea oil and gas fields are yielding far less now (one million barrels a day compared with three times that 25 years ago) and so we are attempting to cement gas-supplies from other regions, especially Qatar in the form of liquefied natural gas. Projections of the gap between home production and imports of gas and oil are such that by 2013 the bill will be £500 billion ($1 trillion) in the red [2]. To emphasise, that is only 4 - 5 years time, and undoubtedly, Britain's budget will fail long before then, unless we cut-back on our fuel use dramatically.

An acquaintance of mine told me recently that he "couldn't afford to work", because the benefits he receives from the state are far more generous than a low-paid wage. So, I keep him therefore by working and paying my taxes; not that I am rich exactly. The system seems set-up to fail under its own bulk and even paying my "friend" a government subsidy to encourage him to work would cost the welfare system far less than its present manifestation does, and a man would have the pride of doing a useful job rather than empty days and potential "work" being made for idle hands. He has a drinking and drug problem, which I think is partly caused by his years of unemployment (i.e. boredom). He's a decent guy and I feel that the Welfare State has let him down, and many others, by condemnation to membership of an underclass, who would have been respectable working class at one time - as my own family were.

Meanwhile there is a £7.5 billion "hole" in the U.K. national budget for next year [3] in consequence of that euphemistically termed "economic turn-down", which covers a multitude of sins. To place this sum in perspective, we may note that filling its hole through cuts would amount to sacking 57,000 teachers, cancelling the two new giant aircraft carriers ordered by the Ministry of Defence and closing five hospitals. Another 2p on income tax would also do it, but at a time when irate motorists and haulage companies are calling for the government to cut its taxes on fuel, this does not appear likely.

The poor British worker is being hit hard enough already to pay for everybody else, in the unsustainable system that has been allowed to evolve from the wholesome roots of 1947 to create that "land fit for heroes".


[1] "Brussels raps UK over excessive spending."By Joe Murphy. http://www.thisismoney.co.uk/news/article.html?in_article_id=442817&in_page_id=2
[2] "A State of Emergency." By Euan Mearns. http://theoildrum.com/node/4188
[3] "Exclusive: Brown's £7.5 billion black hole. By Colin Brown. "http://www.independent.co.uk/news/uk/


Anonymous said...

Clarence from Baltimore here.

Just wanted to say that your post here touches on something - a piece of a puzzle that has so far eluded many. That is, what are the socio-political factors that are active in the western countries at this time of great economic peril?

I see broken political systems in both the US and GB -totally unable to face up to the actions and challenges of the coming crisis in any meaningful way. Technologically, I'm an optimist -but socially I'm a pessimist. It's my opinion that what will need to be done in the US will be done by the private sector or not at all. IN the UK, I'm not sure what to say. It's obvious your societes carrots and sticks are all messed up.

Figuratively speaking -heaven help us.

Professor Chris Rhodes said...

Hi Clarence.

I agree, and arguably these social systems have been built and encouraged by the supply of cheap fuel, since WWII say.

When it does all hit the fan, we will be in trouble. Imagine the consequences of 50% of the UK's population who claim, including the inner-cites, if the government suddenly couldn't afford to pay the "benefits" bill, which amounts to almost $300 billion (£148 billion).

I note from the news this morning that the UK government are trying to arrange things so they can borrow more money.

So the situation seems to me - here anyway, I don't know how the US system is arranged in detail, but I gather it is a lot less generous than that in the UK - the powers are having enough trouble keeping the lid on the staus quo let alone to make serious plans for a "post-carbon world"!

As you say, "heaven help us"!