The deficit - over 85% of it is the cost of the bank bailout!

[ColdComfortFarm]

Ok, I've been really shocked by the figures cited for the size of the deficit - over 927bn. And recently I've wondering what the point of cutting 1bn by axeing child benefit was in the face of such a huge debt. Now I have discovered that more than 85per cent of the deficit is not profligate Labour spending, but the cost of the bank bailout that saved the country from total financial collapse. The deficit in April EXCLUDING the bank bailout was 156bn (not pocket money but nowhere near 927bn). The cost of the bank bailout was £850bn source here: www.independent.co.uk/news/uk/politics/163850bn-official-cost-of-the-bank-bailout-1833830.html
Economists and people who seem to know about such things on Mumsnet keep saying that no real money has actually gone to the banks - that there are guarantees which have not been used, and which are being paid for very handsomely by the banks, and money spent on shares, which have risen in value....so are we being sold a totally artificial panic? It seems so.

We directly spent £70bn on banking shares when the crisis hit in 2008 - that's been the impact on the national debt. Significant but arguably not 'ballooned'. The institutions we borrowed money from were not RBS or Northern Rock... who were rescued with the money. The government stepped in because RBS and Northern Rock could not borrow this money elsewhere themselves.

The economy slowed down as credit dried up and international trade hit the buffers. Yes. And part of the budget changes and spending plans are designed to acheive growth in the economy... because as you rightly point out, spending cuts alone are not going to deal with the problem. Hence the retention of certain capital investment projects, changes to business taxes (often castigated as 'lining the pockets of the Tory's mates') and not being too draconian with the banking industry which we need to be successful.

The foreign aid budget has extremely wide political implications and impacts indirectly on national security, international trade and many other important areas beyond 'helping the starving'. BTW...African nations have been trying for years to renegotiate interest payments on their national debts. It's not quite as easy as a national 'IVA'

Yes I agree with that. But if we hadn't have bailed out the banks, the entire bond market would have collapsed, all these investment managers and pension funds would have been holding worthless paper. So why did we bail them out only for them to hold us hostage in return? Instead we could have put the entire system into bankruptcy and started from a clean sheet. Instead, we saved them, by borrowing to pay them and will keep paying them for ever more. Looks like we asked for the chains that bind us.

This is from the Telegraph

"As Chancellor, Gordon Brown significantly reduced the size of the national debt, in large part thanks to the £22.5bn windfall from an auction of 3G licences in 2000. However, in the wake of the financial crisis, UK net debt is set to soar from around 40pc of gross domestic product to just shy of 90pc ? £1.6 trillion."

I remember that Brown was criticised at the time for reducing the national debt, by using the 3G windfall. This was because he could instead have invested this money into the economy and produced longterm jobs, but instead chose to pay down a relatively small portion of the national debt in order to reduce interest payments. UK debt has soared due to the financial crisis. It has junped from 40% to 90% of GDP. It looks like it is more than the 70bn for bank shares or whatever.

Unfortuately, if we'd put 'the entire system into bankruptcy', your, mine and everyone else's savings, investments and pension funds would have gone west. The deal with the banks was not well-framed at all by the Labour government because the people they chose to do the deal were also bankers. We could have built in many more conditions but that's rather water under the bridge. We have to deal with the situation as it is, rather than the one we'd like to have :)

The interest on £70bn is not why we're overspending by £180bn per year and rising... The interest on £1 trillion has a bigger part to play

Yes it's the interest on the trillion and a lot of that trillion is due to the banking crisis. Yes Labour rolled over. That answers the question why aren't Labour talking about it, apart from the usual "yah boo" theatre from the despatch box. Someone has to pay for the mess and as usual it is the public. I just sometimes wonder if instead of the public, maybe some of the financiers could have paid for it instead. But that would require more than 'yah boo', and if you look at Labour's front bench you quickly see that that is impossible. You only need to look at Alan 'Yah Boo' Johnson, and you quickly realise that all hope is lost.

A lot of that trillion is also due to expanding the welfare state by 45% and by inflating public services. An internal money-go-round funded too heavily by the financial sector rather than developing more trade and capital development. I'm no supporter of the last administration. I agree about the Labour front bench. All so far guilty of that terrible political technique i.e. 'playing the man & not the ball'. No wonder Cameron asked 'what would you do?' at PMQ... I was shouting the same thing at the radio myself! :)

Yes good question by Cameron to Labour 'what would you do?' The answer of course is nothing. That's what they went into politics to do. It's ideological. You only have to look at Alan Johnson to see it.