to think 100 business leaders have more credibility

[longfingernails]

than Ed Miliband?

Cue the usual left-wing demonisation of business, accusations of fat cattery, and the denigration of success. Labour can't escape the perception, firmly rooted in fact, that they are now an anti-business party, and therefore an anti-jobs party.

YABU if you think 100 business leaders would vote for or support anything in the interests of anybody but themselves.

The fact is we have run out of money, in fact we run out a long time ago, so hard choices need to be made and that's why i am voting tory again.

Thanks CinnabarRed for proper hard facts and really clear analysis.
I do wish we could discuss economics and public spending without knee-jerk, poorly examined generalisation.
It's easy to knock big business, but I think a lot of small business owners are just as - if not more - guilty of treating workers poorly based on the bottom line. Indeed, one could argue that profit matters much much more to those in smaller business than they do to massive conglomerates.

Also, you'd be surprised how many hospital wings and museums and charities are funded by enormous donations by big business that so many seem to despise.

For every Mike Ashley, there are loads more big business leaders who do actually give a shit about their employers and their communities.

*employees, not employers sorry.

I'm not convinced that people do automatically vote in line with self-interest, actually.

Take DH and I. Our combined annual income is in excess of £250k; we educate our children privately; we use private health insurance. On paper, we should vote Conservative - because that's the party which is most likely to reduce our tax burden and welfare cuts are unlikely to impact on us. But we're both life-long Labour voters and I can't see anything changing that (and, no, neither of us has ever entered into any tax avoidance scheme to reduce our taxes).

As is inevitable, many of my friends are of a similar demographic - most earn less, but still white, middle class earners. My job being what it is, we often talk about politics. I'd guess that roughly 1/3rd of those who have disclosed their preferences vote Labour, despite being personally worse off under a Labour government. Around 1/2 vote Conservative, but all of them have put thought into that decision rather than taking a 'stuff you' approach. And perhaps 1/6th are swing voters depending on the facts and circumstances of each election (and also tactical voting).

One could also argue that it's self-interest behind lower earners voting Labour, of course. There's no logical reason why low earners voting in their own self-interest is morally purer than high earners voting in their own self-interest, although it's certainly more understandable.

I wish there wasn't so much animosity between groups in this country. I honestly think it's harmful to everyone.

CinnebarRed Thank you for your analysis. It is so refreshing to read the view of a poster who can stand back from party politics and talk facts, irrespective of their personal philosophical views.

I really dislike and distrust the cherry picking of facts to suit a personal philosophy. I honestly think no one political party has a monopoly on truth or good ideas and hate the knee-jerk reaction of attributing all that is good to the party you support and all that is bad to the party you don't.

Life, economics and politics are so much more complex than that, which of course means I get splinters in my arse from fence sitting half the time.

I used to think that anyone who voted Conservative was evil, back in my youth.

It took a drunken conversation with a friend, who happens to vote Conservative, for me to understand that we both of us wanted exactly the same things. We just had different ideas about how to get there.

There's a great quote from Terry Pratchett:
"Good and bad is tricky," she said. "I ain't too certain about where people stand. P'raps what matters is which way you face.” - Witches Abroad

Cinnabar really interesting and useful posts. You sound like you might be able to answer a question I have. When we talk about paying down the deficit, who or what are we paying it to? I think you mentioned 'our bondholders': who are they? Other countries, individuals, the World Bank...?

Government bonds are bought by private sector institutions such as pension funds, investment trusts and banks. The majority of these are private sector buyers are domestic financial institutions (who are obliged to hold a decent chunk of their investments in low risk forms). Most UK debt is owned by the UK private sector. From 2009-12, the Bank of England has pursued a policy of Quantitative easing which involves buying gilts from the private sector. Therefore, there has been a growth in the % of UK gilts held by the Bank of England.

About 30% of UK national debt is held by oversees investors.

Thanks for the clear, objective analysis in all your posts Cinnabar, makes a refreshing change on these threads.

Also, thanks for answering the question that has always intrigued me as to who we owe all the money to.

Could you just clarify it a bit:

The Bank of England has bought gilts from the Private Sector, therefore the BofE holds a % of the debt? The Government has borrowed money from the BofE? Is that not borrowing money from itself?

Private sector institutions use the money they receive for pensions, investments, etc., to invest in 'safe' stock such as Government Bonds which the Government has to pay whatever the circumstances, but it is paid back in instalments like a loan? The Government then uses the money for whatever in the economy.

The 30% of the debt held by overseas investors, they invest X for X number of years at a rate of interest of X, can they call in the 'debt' at any time? Or are there different rules as it is 'investment' rather than 'loan'?

Can you explain the difference between the above and the structural deficit?

Cinnabar, thank you! Can you explain private equity to please?

I'd like to think that a Labour government could come in and bring help to the people in this country that really need it.

But that government would be led by Miliband and Balls who were so deeply involved in the last Labour government, learning their trade under the war criminal Blair and the financial incompetent Brown. I just cannot bring myself to trust them.

Emotions - yes, the BoE is in effect holding the debt on behalf of the Treasury, paid for with "free" money the BoE printed. The main reason the BoE holds on to the debt (as opposed to the Treasury simply cancelling the debt) is because it could, in theory, sell the debt back onto the market at some point in the future. Government debt can be very, very long term (the country has only just finished paying of the bonds it issued to fund WW1) and who can say whether decades hence it might make sense to do so?

Government debt (which you sometimes hear referred to as government bonds or gilts - all the same thing) are not repayable on demand by the lender, but do include fixed payment dates for both interest and principal. The exact terms vary depending on the debt. The UK Government has never failed to make interest or principal payments on gilts as they fall due.

The government uses its debt to pay for big one off or unexpected items (buying Northern Rock, for example). It also uses debt to fund short term cyclical shortfalls arising because of, say, a recession. This kind of deficit is called the cyclical deficit - it depends on the economic cycle.

The part of our budget deficit that results from a fundamental imbalance in government receipts and expenditures (as opposed to one based on one-off or short-term factors) is called the structural deficit.

For many years now, way before the recession started, we have spent more than we bring in through tax receipts. Very roughly, tax receipts (including local government taxes) bring in around £600bn pa and we spend around £700bn pa. The £100bn pa shortfall has to be paid for somehow, and we as a nation are currently living on credit.

A really good book on the 2008 crash, and the Western financial systems, is "Whoops!: Why everyone owes everyone and no one can pay" by John Lanchester. It's aimed at the general public rather than economists and had rave reviews across the political spectrum.

InterOuta - at its most basic level, private equity is share capital that is not quoted on a public stock exchange.

However, the private equity I was referring are private equity firms, whose reason for existence is to invest in private companies (and sometimes to buy all of the share capital of a company listed on public stock exchanges - referred to as taking the company private).

I have four issues with private equity firms.

First, their business model is predicated on holding their investments for short time frames. So they tend to make decisions designed to maximise their short term profits rather than improve the long term health of the businesses they buy.

Secondly, the private equity firms can borrow much more than other people, putting them at a competitive advantage (I would say an unfair one). It's easiest to demonstrate this with numbers. Imagine a company worth 100. If I had cash of 100 I could buy it. And if it was worth 105 in 5 years time then I would make 5 of profit when I sold it - a 5% return. Now imagine the same company but bought by a private equity firm. The PE firm only has cash of 20, but is able to borrow an additional 80. When they sell the company for 105, they repay the debt of 80, and make 5 of profit on their own cash - a 25% return.

Ah, you might say, but surely the PE firm will also have to pay interest on the 80 debt it borrowed, which will reduce the 25% return to something more realistic? That brings me on to my third issue - the private equity firms typically stuff the debt they borrow into the companies they buy, so that (bizarrely) the company pays the interest on the debt taken on to buy it. Going back to my fictional company above, it almost certainly wouldn't be able to borrow 80 in its own right, so it's being asked to bear an uncommercial expense as a result of being owned by the private equity firm.

Finally, PE firms - who are clearly trading in companies rather than investing in them - are taxed on their profits as capital rather than income, which means that the PE managers pay ridiculously low tax on the profits they make (oftentimes less than 10%). Which I think is a national scandal.

TBF, PE can be a life saver for failing businesses that can't access finance elsewhere, but I think the scale of which profits are stripped from the acquired companies (and the rate at which the profits are taxed) are wrong.

One in five (20%) of the businessmen who signed pro-Tory letter were given honours by David Cameron and one third (33%) are Tory donors. Four of the signatories are Conservative members of the House of Lords and one was jailed yesterday for insider trading...

"Quick, over here, people - cinnabar's doing A level Economics lessons - for free!"

cinnabar

Umm - should I stop?

I really, really don't want to patronise.

Don't stop, you've been brilliant and not at all patronising.

Don't stop, cinnabar, I'm loving it! The flowers were to say thank you

Don't stop, cinnabar. Your style is not remotely patronising.

Please don't stop Cinnabar your explanations are fabulous and not at all patronising, and you are answering questions put to you - thanks. I really wish there were more clear, concise explanations like yours in the media instead of all the flim-flam and rhetoric.

So we are consistently short as a country in our incomings and outgoings, and does that matter overall, and is there a crisis point related to what the percentage is, i.e., if we were borrowing 50% of the revenue required to run the country?

Presumably because the UK pays the interest and capital on time we are considered a safe bet, and the problem in Greece is because they are not hence the potential return on the investment is higher?

Is it other countries, foreign institutions or individuals who buy the debt, or a mixture of all three?

The Tories are good for the economy in the same way that high house prices is good for the economy, in the same way that giving tax breaks to the rich is good for the economy, the same way that selling off national assets like the NHS and the railways is good for the economy. The economy = what looks good on paper and what makes the rich richer.

However, none of this trickles down to the majority, most of whom have seen their income disappear over the last 5 years, whilst the cost of living goes up. Our GDP is higher than France but our children have to pay £9k per year for university, whereas French kids whose country has a lower GDP don't. Just because it is "good for the economy" doesn't equate to it being good for the majority of people. Good for the economy under the Tories = good for the 1%, MPs, the banks, big business and the rich. It's all smoke and mirrors.

Oh and when Murdoch and other billionaire media moguls and big business own the media, and choose one party over another, there is never going to be unbiased reporting. We basically have Murdoch dictating to the country who to vote for. And Murdoch and big business dictate what laws and rules the parties should implement or they won't back them. This is not democracy. All parties are beholden to and controlled by the wealthy for the wealthy. There are no parties that seem to represent the interests of normal people. They have all been bought.