Tuesday, October 19, 2010

Man ring-fences his beer from spending review cuts...

Very interesting exercise, easily showing the limits of the governments comparison of the UK budget deficit to a household budget or a person's credit card bill.

BBC News - 'My own personal Spending Review'

...the coalition government has used the comparison with household budgets to make the case for its own cuts....At the Liberal Democrat party conference, Nick Clegg compared the UK to a family which earned £26,000 while spending £32,000 a year on top of £40,000 debts. David Cameron has also described the deficit as "a bit like our credit cards - we all know the longer you leave it, the worse it gets".

Nonetheless, this line of reasoning has its limitations, Malcolm Sawyer, professor of economics at the University of Leeds, says.

He argues that, because about a third of the government's debt is owed to pension funds, repayments are going from one set of taxpayers to another.

"Politicians like to refer to the image of the housewife doing her weekly shopping budget - it's a powerful analogy that's easy to understand," he says.

"But the reality of why governments run up deficits is harder to explain in a soundbite - it's because tax revenues collapsed."...

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