The numbers just dont add up .....

There's been lots of talk about defence budgets, ministers resigning over them etc in the last few weeks.

The default answer is there needs to be cuts to the welfare bill - yes that would help but it's not enough.

The numbers simply don't add up. 

Most people, except Rachel and Kier, know that money out needs to be less than money in order to not get into debt.

So here's money in for the UK:

Income tax        £330 Billion

National Ins.    £204 Billion

VAT                    £183 Billion

Corp Tax            £103 Billion

Fuel Duty            £24 Billion

CGT                    £13 Billion

IHT                     £8 Billion

TOTAL                £865 Billion

If you include local tax (ie council tax and other sources) then the total is £1.2 Trillion however the services eg Police are not funded from central budgets so I have not added them into the total. 

Here's a simplified view of outgoings

NHS                    £317 Billion

State Pension      £178 Billion

Welfare                £156 Billion (excluding state pension)

Education            £146 Billion

Debt interest        £126 Billion

Armed forces      £66 Billion

TOTAL                 £989 Billion

Actual government spending is £1.3 TRILLION so there's another £300 Billion of government spending not included in these numbers. But we'll ignore that for now. 

Money In = £865 Billion whilst Money Out in the above list is £989 Billion so a shortfall of £124 Billion.

Ignoring the need to spend more on defence , how can we live within our means?

Let's ring fence NHS, Defence,  Education and the Armed Forces that comes to £707 Billion - pretty close to the money in.  It means we have stopped ALL benefit payments and miraculously repaid £3 TRILLION in debt to avoid the £126 BILLION in interest payments and we still struggling to balance the books. If we service the debt then there's just £32 Billion for welfare - down from £156 Billion.

The actual position is worse than this. As we ignored £300 Billion in spending.

There are some stark choices.  Massively raise taxes or massively slash spending.

We are already the most taxed we have ever been in peace-time. Taxation is pretty close to second world war levels.  Further taxation is unlikely to be the solution.  The Laffer curve shows you that increases in taxes will result in less tax. Taxation drives behaviour and people elect to not work or it creates a black market economy.   If we were at war then there would be more willingness to pay additional taxes but not now.

If we increase defence spending by 10%, we would need to CUT the NHS, Education and state pensions and welfare bill by 16.5% to halt the increase in debt service costs and  balance the books for now.....

If we CUT these bills by 18% we would have a budget surplus and start paying down the huge debt pile. It would still take us 88 years to pay down the debt.

There are some stark choices ahead -  default on the debt - triggering  an IMF bail-out and the corporate help will arrive to make these hard decisions for us OR the government needs to make some tough cuts.  They are unwilling to make the cuts so the IMF "to the rescue" is increasingly looking likely.

If only we lived in a world where we could ignore the reality of the numbers. Rachel's world....