to not give a monkeys about the deficit?

[StuckInTheMiddleWithYou]

I genuinely think we should ignore it.

If we don't pay it back to whoever we owe it to, would it be the end of the world?

I thought this Paul Krugman column in the New York Times was an interesting take on the apparent mania for deficit reduction in the major economies.

Tech - The problem with relying on Economic Fundamentals is that no one agrees on what they are...

It's silly to use the household budget as a comparison, where cutting back is the only option, the Government have the option of raising taxes too. Just a penny on income tax could raise around £4billion a year. They have chosen to go down the route of cutting the public sector for purely ideological reasons.

In any event, if things are so bloody awful, why are we funding such expensive iniatives as the free school program and spending millions privatising the NHS?

I understand savings need to be made and I'm all for cutting waste and duplication, but that is not what we're talking about here.

I thought the German recovery was seen as being more stable and that they weren't in danger of losing triple A anymore? Think it was in WSJ on Friday last week?

Wubbly - Therefore to eliminate the deficit entirely through income tax, you would have to put it up by 40p in the pound. So 60%,62%,80% and 90% bands.

Of course, you wouldn't just use income tax, and you wouldn't cut the deficit straight to zero, but it illustrates the size of the issue.

Aye GP, but the raise in VAT once again hits hardest those who have the least.

They could've stuck 2p on basic rate income tax and raised a similar amount. At least the burden is spread fairly.

It's ideology again.

There is no doubt that opinion differs in terms of how the deficit ought to be dealt with, but that means there is at least one alternative to these punitive cuts. You wouldn't think it though to read the press and watch the news.

Yes, I don't understand why taxes could not go up.
I have nothing against real spending reviews aimed at cutting waste/wanton spending, eg on atriums in govt buildings, on management consultants etc
I also have nothing against any govt looking at the benefits system to make sure people are better off in work, since low paid workers seem to have the worst of all worlds as far as I can see, and work has its own benefits for people- self esteem, self discipline etc..
But as for this crazed, totally ideology driven slashing of the public sector, I am just bewildered. Given the choice I would gladly pay more in tax.
Although I would far, far rather see the burden for this deficit fall on the shoulders of the banks, the very wealthy, etc.
Seems to me all the rest of us have ever done is try to work, raise our families, manage sensibly and live our lives as best we could- so why we should lose our state schools, libraries, hospitals, jobs, homes (should interest rates rise..) I don't know :( :( :(

Yes, as explained above as well all know Labour (and the worldwide crash) have got us into this cycle (we've always had cycles) and we have to get out by extra taxes and cuts. If we had paid back more debt when we had a lot of money rather than spend spend under Labour we would not be in such a mess.

The odd thing about UK Govt bonds (debt) are very much in demand. UK Govt debt price has risen sharply over the last few months as the stockmarkets have fallen. People are increasngly terrified of a stock market crash and the Govt bond markets are taking in the cash being that is pulled out of stock markets.

The Wall Street Journal today published a list of the contries least likley to default on their debts. The UK was among them.

Truth is that that there are many other countries that will default before the UK so our Govt debt is paradoxically seen as a safe haven even though we have a deficit.

Incidentally, once a country defaults it usually does much better economically as it no longer has to apply crippling taxes to its popuation. Not surprisingly lenders will lend after a default much more readily than before.

Argentina is a good example of how a country can do better after a default. Debt defaults across Europe and in many US states are inevitable and will in the end be the only way out.

Unfortunately, it will likely be pension funds and life insurers that suffer as the holders of Govt/state debt are often supposedly safe conservative investment institutions.

It does annoy me when people talk about job losses in the public sector and say that bank staff have been unaffected. RBS have been announcing job cuts in dribs and drabs for months 2300 here, 2600 there, then another 4500, with another 500 over there... by my reckoning that's over 10,000 jobs in just one UK bank. Northern Rock have cut another few thousand jobs, Lloyds announced 5000 job losses. The announcements go on and on.

Many of the affected staff are relatively low-paid, on benefits to supplement their low incomes (call-centre staff etc.), I think it's a kick in the teeth to these people to claim that their livelihoods are unworthy of comment.

This whole thing about tax avoidance on bonuses is massively overblown. It is actually pretty hard to avoid paying tax. You can only basically get around it if you are not a UK resident AND you get get paid offshore (everyone pays UK tax on UK earnings regardless of residency status)and that applies to very very few people, OR you mainly get paid in equity (ie shares of the bank for which you work) in which case you are only postponing the tax until those shares mature and you sell them(and it also gives you a longer term incentive vs cash which is what the tax payer is saying they want). If you work and live predominantly in the Uk (which most UK based bankers do), it's going through PAYE and there's nothing you can do about it (which is a good thing obviously).

The long term borrowing analagy works if you believe that what the government is spending on will generate a return. I wish I shared Victoriah3's confidence in UK Plc. However, I think we are now playing in a very different field where the Uk is not as attractive for investment vs other economies as it was. We are not going to just pop out of this recession. We need to make it happen. The last 10 years of economic strength was probably a once in a lifetime anomoly, whereby the rising tide of China lifted all boats. If you think about what the UK itself was actually doing economically in that time, the answer is very little apart from stimulating the economy using cheap debt.

[crying with laughter emoticon]

Whether we like it or not we have to reduce our debt by tax increases and cuts.

We currently borrow on very good terms thanks to our AAA status. If we risk that status, the terms become harsher.

Surely none of us want our DCs to inherit a country with uncontrolled debts?
And that's the reality.

As for the banking crisis - obviously the debt was increased massively for the bail out, but it's worth noting that our debt had already risen massively before that. In the first part of his administration Blair kept pretty much to Major's spending plans but it started to creep up towards the end. Brown oversaw a massive hike.
This coupled with a decrease in tax take obviously spelled difficulties.

Did I hear anybody say Greece? Or Italy? Spain?

The point missed from this thread is that if we do not control the deficit now then we will have to pay a higher rate of interest on the money borrowed.

The government is proposing to reduce the deficit over 5 years, not to cut it over night. That actually means that net debt will increase each year. However, the rate of interest the UK is paying on government debt is about 3% whereas Ireland is paying about 5% (and Germany about 2.5%).

If we followed Labour's strategy of cutting later then we would have to pay more interest and cut spending by more.

2% extra on £1,000,000,000,000 of debt is £20,000,000,000 extra each year. (20bn)

Hence if anyone wishes to argue that we should not be cutting now they have to explain where we will get the extra 20bn from in the future (either extra cuts or extra tax).

VAT on the basis of households is a marginally progressive tax. A childless couple on Income support is likely to pay an extra 50p per week, but once their benefits are uprated they will be about £1 a week better off.

The point about index linked benefits is that they are linked to the cost of living (including VAT).

Piprabbit .. I hear you ! My DH works in the city - he is technically a banker .. However I really hate the way that the term Banker has come to mean something bad.. Like they are all guilty of bankrupting the country - its an extremely simplistic view taken by people who arent bothering to see the whole picture..

My friend was one of those made redundant by RBS and my DH was made redundant too, as were 2000 of his colleagues...
Plus another friend of ours who lost everything - pension, even that months salary ...

It drives me nuts when people go on about how the public sector are taking all the pain - its so not true - the banking/ finance sector got hit first ..while the rest of the world was still blissfully ignorant..

Most bankers are real people with families and debt and mortgages like the rest of you ...

That doesn't quite follow, johnhemming...

Wasn't Ireland's debt downgraded after they put in place massive cuts (similar to ours) which caused the economy to tank and tax receipts to fall?

The formal downgradings are by the ratings agencies. The interest yields are by the markets.

What you need to watch are the yields on sovereign debt. These figures are available without charge via bloomberg.

"VAT on the basis of households is a marginally progressive tax."

Quite right. VAT is NOT a regressive tax.

The poorest spend proportionally more on things which don't have VAT on - eg food, children's clothes etc.

The better-off spend proportionally more on things which incur VAT.

That's why the govt chose to increase VAT on existing VATable items, rather than broadening the VAT base.

I agree (as a low income family) that I would rather pay more VAT - where I can chose to buy less, buy cheaper alternatives, buy from a charity shop, accept hand-me-downs from friends and family - then pay more income tax about which I have no choice.

me too.... Most vat rated spending is discretionary .. at least you can choose to not buy a new tv ( flatscreen of course )

Had they put vat on food I think that would have been a much less far way of raising extra money .. Its hard enough when you have to pay vat on clothes for twelve plus year olds because they are small adult sized .. to put vat on food would be really unfair..

VAT is regressive for two reasons. First, everyone pays the same rate, whether you are a millionaire or on benefits. Second, poor people have to spend every penny just to survive while better off people can afford to save and invest. Better off people have more opportunity to avoid paying VAT. It's not about flat screen TVs, it's about essential items such as sanitary protection.