Tuesday, March 22, 2016

This is the simple mathematical reason why Osborne’s strategy will lead to financial ruin

The reason why Osborne’s plans were always going to come unstuck is a function of simple arithmetic.
Assume my spending remains constant at 100. To fund that spending I must have receipts, every year, of 100. Over five years to fund spending of 500 I must have income of 500. That five years is important because it’s the time horizon over which we plan our nation’s spending.
If my income is not 100 a year but 85, I have a problem. You might think, and rightly so, that I am 15 short. This Government has been 15 short.
What it has done, to hide that truth, is accelerate a whole bunch of 15s from later years into earlier years to hide the shortfall. Which is fine in earlier years – your budget looks balanced – but it leaves you in those later years with a shortfall of 30: the 15 you had anyway and the further shortfall consequential on you taking 15 from those later years for use in earlier years. Instead of having 85 you’ll only have 70. It’s not that complicated: if you spend tomorrow’s money today, you won’t have it tomorrow.
For a number of years, this is what we’ve been doing. On an extraordinary scale. Did you see those italics? Good, because I’m going to come back to them. And we’re now looking at a whole bunch of 70s.
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