Government spending: Kicking the habit

Like a smoker, the government has an addiction. Perhaps it should have its own Stoptober?

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Do Osborne and King really get it?
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Simon Miller
On 21 September 2012 12:16

I have always wondered what the puritans will complain about when they have banned everything. Fresh from attacking smoking they turn their attention to drinking and eating while the general public get enraged about this and that on the telly or newspaper rather than doing the simple thing of not reading or turning over.

The latest initiative to “de-normalise” smoking will see smokers “encouraged” to give up for a month under a £2m scheme called Stoptober.

This despite the fact that smokers have already been banned from the workplace, pubs, and restaurants, and despite, over the past three decades, taxes going up so that the average packet of fags now costs around £7, and the amount of smokers has bedded down to around a core 20 percent.

What’s the bet that this latest attempt to be a “responsible” government doesn’t work? Despite the abuse, the costs, and ostracisation of the smoker, the government’s own research showed that “there was no significant difference in cigarette smoking prevalence in men and women before and after the implementation of the smokefree legislation on 1st July 2007”.

This is because smoking is a habit, aided and abetted by nicotine. And it is a very hard habit to break.

And the government should know this because it also has a habit that damages people in the long run. Yet, despite knowing this, the government cannot give it up – spending.

Figures released today saw that public sector net borrowing (PSNB), excluding financial sector interventions, rose last month to £14.41bn from £14.37bn in August 2011, the highest for any August since records began in 1993.

As a result it took borrowing in the fiscal year to date to £31bn - down £17.75bn from the equivalent last year – but that was added by the sleight of hand which saw the Royal Mail pension assets chucked onto the books whilst conveniently leaving the liabilities off it.

In addition, the Bank of England’s Special Liquidity Scheme (SLS) actually made money. Yep, I can’t quite believe the Old Lady did something right for a change, but £2.3bn profit was realised by closure of the SLS.

Without these boosts to the accounts, the actual deficit stood at £61.3bn, a £12.9bn rise compared with April-August 2011.

Now, here comes the good news – the news that the Government will be pumping out to the media all day: For the financial year 2011/2012, the PSNB was £22.4bn lower than 2010/2011 at £119.3bn.

This £22.4bn drop in PSNB was attributed to a £13.5bn reduction in net investment and £8.9bn reduction in the current budget deficit.

So there is a small ray of hope amidst the gloom but the government has to face the fact that it is overshooting by around £9bn so far this year.

Indeed, it is expenditure versus receipts that is depressingly familiar for those who have looked at these figures for the past few years. For August, receipts were down £0.7bn than the previous year but spending was £1.3bn higher than the previous year at £52.2bn.

For April to August 2012, expenditure was £7.7bn higher at £264.2bn against receipts of £213.8bn - a £0.8bn rise from the previous year.

If you look at 2011/2012, expenditure was £617.4bn - a rise of £11.1bn.

Now, you all will have heard the spurious argument that the bond market isn’t important, that the government can just print money. Hell, in the comments on these very pages, someone said that the Bank of England sets the interest rate that the government pays. Not quite. A government wanting money will put a set of bonds out to market which then gives a spread of rates it thinks are suitable for the government to borrow at, which the government then agrees in a set of deals. This is why you read about ”average yield” and a buyer ratio – how many people have offered to lend a government money; i.e: If there are 10 bonds and 20 lenders out there you get a ratio of 2:1.

Anyway, despite the yield on UK debt, repayments actually went up. Yes, up. The debt interest payments were up £2.5bn thanks to not only all those extra gilts out there but for those that are index-linked, movements in the Retail Price Index also produced increases in the interest paid – thanks Merve.

So where’s the rest gone? Social benefits. Despite the cries of horror and booing over so-called cuts, this spending has gone up by £8.2bn – a combination of the economic climate, inflation, oh and that ridiculous above inflation guarantee on benefits – thanks Georgie.

So, between Merve and Georgie, the expense of statehood keeps going up. Like the smoker, they’re putting off quitting until tomorrow at least. Indeed Merve has waved the metaphorical cigarette packet at the Chancellor by saying that it may be “acceptable” for Georgie to miss the deficit targets this year due to the world economy.

Doesn’t that idiot get it? It is because of his actions, Gordon Brown’s actions, Georgie Boy’s inactions, that we are on the precipice.

Forget the bizarre employment figures, forget hints of green shoots of recovery, if we do not start making the necessary cuts to the state, make the necessary changes to wean people of their benefits, get the private sector moving, introduce efficiency into the public sector and make the tax and regulation cuts, we will be punished.

Merve the Swerve told Channel 4 News last night that “it would not be acceptable to miss the debt target if there was no excuse for it”.

But that’s the thing about a habit. You will always find that excuse to do it tomorrow.

With a public addicted to the idea of big government and a state addicted to big spending, Georgie should have got us going cold turkey as soon as he took office because as anyone who’s tried to give up cigarettes knows, the longer you leave it the harder it becomes.

Simon Miller is a Contributing Editor to The Commentator and Editor of Financial Risks Today. He tweets at @simontm71

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