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Explaining the Deficit: Let’s call it the Overspend instead…

December 22, 2014 Leave a comment

Red-HerringYou are probably feeling quite fed up with politics, politicians and all the talk of May 2015. If not, the chances are you may be one of those planning to run in the General Election.

Wherever you look, the Parties are sounding off in what they are calling the ‘long campaign’ which runs from now until April, and the Deficit is something we are already hearing a lot about.

But when a Westminster politician starts talking about Deficit reduction, or making statements that indicate they ‘plan’ to reduce the Deficit to zero by the year XYZ, you may be one of the many people left wondering what they are actually talking about and what it really means.

You might not be sure what the Deficit is. You may not understand the difference between the Deficit and the National Debt. But whatever question you may have, don’t worry. Even MP’s have struggled to explain the difference when they have been asked to do so.

Giving new names to existing products, services or methods of working isn’t a new idea. In fact, it’s not just Westminster politicians who use new names to sell their ideas and many of the new products you buy will just be a re-hash of an old idea using new words to describe something differently; just so it sounds like something better.

Selling is one thing. Misleading us another. The term Deficit is perhaps one of the biggest red herrings that Westminster has created, and especially so when they use it to draw attention away from the spiraling National Debt.

So what is the Deficit?

Perhaps the easiest way to picture the Deficit is to think about the Government as a person. A person who earns money and then spends that money on house-keeping and all the things that it might need.

Where we might run a home, the Government’s house is the whole of the UK.

Where we might spend our money on food, the mortgage or rent, clothes, transport, paying back loans and maybe going out, the Government’s housekeeping bill is public services such as the NHS, the Police, Armed Forces, Education, Transport and Local Government.

Whereas we would do a ‘job’ to earn a salary or perhaps an hourly rate of pay, the Government ‘earns’ its money through Income Tax (PAYE), National Insurance, VAT and all the other types of Taxation which we all pay.

Whilst most of us can only earn what our employer agrees to pay us, every year, the Government sets itself a Budget for all the money it will spend on public services. The Budget should ideally not be more that what the Government has ‘earned’ or will ‘earn’ from Taxes during the year that the money will be spent.

When a Government decides that it wants to spend more in a Budget for a year than it will ‘earn’, it has two choices. The Government can raise Taxes so that it has more income than it did before, or it can borrow on top of what it has earned and ‘overspend’ – even though we are normally told that they are spending within Budget.

The difference, value or balance between what the Government ‘earns’ and what it has planned or does actually spend in its Budget, is what Westminster politicians call the Deficit.

Each Budget Deficit – or the Deficit for that year, is what we would call a loan*.

The Government pays interest on that loan*, and this interest – and the money which has to be paid back each year is then added to the housekeeping bill for the term or lifetime of the loan.

When the outstanding balance of the loan* and interest for the year isn’t paid off, it becomes the National Debt and every unpaid Deficit or overspend for each year is added to this.

Surplus

Another term you may hear used by Westminster politicians in the coming months as one of their ‘aims’ is ‘Budget surplus’ or just ‘surplus’.

A surplus in this sense would be the sum of money left over if the Government did not use all of the money it ‘earned’ from Taxes in a year and then had some left over.

Reaching a surplus would be the only point that the Government could then begin reducing the National Debt.

The Conservative Chancellor, George Osborne is suggesting that this will be achieved by 2020 if the Conservative Party are elected with the majority of seats in Parliament in May. Being in Government with a majority and not as part of a Coalition as they have been since 2010, will allow them to make even more cuts to public services than they have so far and this is how the Conservatives plan to reach a point where they have a surplus.

Whether you support the plans that any of the Political Parties have or not, the fact is that this Coalition Government and the Labour Government before it have both had an annual Deficit or have overspent each and every year for a long time.

We wouldn’t be able or allowed to spend money like this ourselves unless we had savings to fall back on, and neither would the Westminster politicians if they were dealing with their own finances.

 

* The way that the Government ‘borrows’ money is not normally the same as going to a bank and asking for a loan. To borrow money or ‘raise funds’, the Government usually sells bonds, which banks, other financial organizations and sometimes even other Countries buy on the basis that they will get the value of the bond returned to them at the end of the lifetime of the bond – probably 3 or 4 years, and that they will receive a fee or fixed amount of interest on top of that for the period too.

When a bond comes to the end of its lifetime and the Government is unable to pay off the balance or value of that bond and its interest because there is not a Budget surplus, the Government then sells more bonds to cover the cost of doing so.

 Image: Source unknown

 

Payday Loans: Profit from misery and the throw back to the age of the Debtors Prison – but this time without brick walls

July 1, 2013 1 comment

payday-loansDesperation, the emotion it brings and the knee-jerk response to any opportunities that might even just temporarily stop the cause of that pain, can lead those of us experiencing it to do what others may consider to be some pretty illogical things.

The prospect of escape at any level can certainly lead to the failure to consider detail that any one of us would normally think about. And when events feel like they have brought our lives to the edge of a precipice and no other answers are coming, would we really care anyway?

The point is being tragically missed in Government that disposable income is falling fast for everyone who is unable to obtain anything beyond standard ‘cost of living’ pay rises; that  ‘standing still’ or ‘treading water’ financially has become all but impossible for a great many people, and that this downward slide is hitting those with the smallest incomes hardest of all.

In some cases, cutting back on luxury items simply isn’t enough to counter the escalation of monthly, weekly and even daily costs which must be met just to survive. Prices on items like fuel for travel, car parking, travel tickets, basic food, clothing, utilities and communication escalate with what feels like jaw-dropping regularity and very few of us other than those charging the fees actually believe that such inflation is genuinely sustainable.

Even those with comparatively good household incomes have cut back and whilst some would argue that reducing the regularity of nights out, buying new clothes or downgrading the annual holiday will hardly make a difference, many of these same people are now using savings or high street credit cards to balance their household books in the hope that things will soon change. But for some of those with less, hope of that kind simply isn’t an option.

Living hand to mouth is a phrase that many will consider an anachronism and borne of a different era. But for many on the lowest incomes, the reality that money is gone as soon as it comes into their hands is very real indeed, so the prospect of ‘a couple of hundred quid to keep things tied over til the end of the month’ coming at you from the TV screen can for many seem a very easy, perhaps timely and almost certainly an attractive way out. But a quick yes followed by the receipt of cash within minutes can easily overshadow the realities of what may be sold as a ‘Payday Loan‘.

With interest charged at a rate of let’s say 1000% calculated as an APR against a loan for a year (per annum or P.A.) of for example £100, the charge without any repayment over one calendar month would be a fee of £83.33. And when you take a quick visit to the internet and see that ‘Representative APR’ or interest rates go up to nearly 6000%, you can see how easy it is to make a difficult situation one which will quickly become completely horrific.

With perhaps as many as one million UK households using Payday Loans each month, you would hope that the Coalition would be doing much more to address the financial issues which everyday people are facing generally. At the very least it would be more than reasonable to expect them to take real action to address what some would argue as being a sanitised form of loan sharking by casting a legislative net across this very dark and murky pool.

But with a Government which has gravely missed the point that real savings in the long term requires the pain of real and meaningful reforms in the short, they also appear to have very little idea how passively influential they are being in guiding ever more people towards the first steps of the negative debt spiral, that in today’s economic climate seems all but impossible for many to then escape. Put simply, no action is action all the same and this action is helping nobody but the loan companies themselves.

There is no simple or isolated solution which will solve this growing problem and protect many more people from the virtual enslavement which is experienced through being the victim of what is arguably a legalised form of crime. However, Government could:

  • Regulate the Payday Loan ‘product’ and enforce a ceiling on interest rates to a manageable level. The fact is that a £25 charge for £100 over a month would still equate to an APR of around 300%. Even at half that if you give generous consideration for what are probably very small administrative costs via the Internet, that still leaves a profit of £125 on every £1000 lent every month or £1500 over the course of a year. Pretty good money even then!
  • Take greater control of the credit assessment processes run by the finance industry which have disqualified many Payday Loan users from gaining mainstream credit and effectively pushed them into the hands of the unscrupulous.
  • Push for mainstream lenders to begin offering the Payday Loan ‘product’. If necessary develop a method to provide a level of guarantee through direct access to the users source of income and Legislate accordingly.
  • Create a Government owned ‘Peoples Bank’, run as a not-for-profit on commercial lines, which has an appropriate level of altruism in its approach to support those who really need it, whether they are domestic users or even small businesses who need the financial leg-up that nobody else seems willing to provide.

There are many more ways that Politicians could help the people in need who Elected them to Office if they really wanted to try.

The biggest step they could take would be to acknowledge that the power of any Government extends way beyond the services that it pays for and then act, knowing that this influence should and must be used to its fullest when the behaviour of any person, group or business is having a negative or detrimental effect on any part of our wider community for no other purpose than making unreasonable levels of profit.

The reality is however that increasing numbers of Taxpayers are now paying for a system which is failing to support them when they need it most, and then paying way beyond the odds for an alternative form of support which isn’t actually supporting any one of them at all.

Without the Coalition even talking about the need for Britain’s lowest wage earners and genuinely-benefit-dependent to be able to maintain a basic standard of living between payments, it is not only finance companies who should be branded for irresponsible practice.

Failing to deal with just this one of so many different problems facing this Country is simply storing up more trouble for yet another day and in all likelihood another Government. And whilst the absence of an overall majority may suit Politicians who don’t have the heart to do their job, everyone else is still suffering.

If you have found and read this blog because you are experiencing financial hardship in any way and are looking for help, please know that there are real people out here who care; who want to help; and that some of them might even be Politicians!

There are some really helpful Charities and Debt Advice Organisations who will do everything that they can to support and guide you through the issues you are facing, or possibly help you to find even more people who can.

A couple worth trying are the Citizens Advice Bureau who may have an office you can visit near your home and the Step Change Debt Charity (Formally the Consumer Credit Counselling Service or CCCS) who can also be called on 0800 138 1111.

If things already feel like they have gone too far to try and make sense of, there are also the Samaritans. Contact any of these Organisations and you will speak to real people who are genuinely there to try to help and are not there to judge you in any way.

image thanks to http://www.moneyadviceservice.org.uk 

Spending Review & Local Authorities: We need change and a resurgence of ethics, not coercive micromanagement by stealth and an even greater distance between people and Government

images (51)With £11.5 Billion in further cuts set to be outlined in the Coalition’s Spending Review later today, I will probably not be alone in asking myself if this is really going to make the difference that the UK really needs.

Of course, many of us have got far too used to asking such questions only of ourselves as we wonder if there is simply any point in asking the same of anyone else and particularly those Politicians who would actually be in the position to give an honest answer if they so desired.

Many of the Politicians we see on TV are spending increasing amounts of airtime telling us that they are listening. But are they really hearing?

Listening to the news in recent days, you may have heard the suggestion that cutting budgets has not been a failure of the Coalition and that it is in fact the continuing problems with the economy and its inability to deliver the income expected at the time of the 2010 Spending Review that is the real issue. An issue which now of course sees George Osborne scratching away at what he appears to see as the tried and tested…

Of course, those like me who currently inhabit the local government political pool will be looking on in horror at the prospect of a further 10% Central Government funding cut from 2015/16.

Cuts in just in this area alone since 2010 have placed a massive strain on service delivery and are quietly playing out in the loss of arguably vital community resources which were once taken for granted and even affecting the speed and quality of pothole repairs on roads which most of us probably feel should be resurfaced when a hole appears rather than undergo repetitive re-patching for the umpteenth time, bearing in mind the amount we seem to keep paying for them.

Played out across all tiers of Government, the Quangos and Non-Government Organisations, the open secret in all this is that efficiencies have to be found. But the elephant in the room sadly remains missed and the rise of shared services, business services outsourcing and privatisation of services forced on us by budget cuts and imposed ceilings on Council Tax rises will never resolve the biggest issue of all which is the need for comprehensive reform across Government at a fundamental and cultural level.

Change is essential to move inefficient and unproductive ways of working which have developed over many decades of protectionist management; Change which will lead into the delivery of services which once again have their focus upon the benefit to the end user and when selflessly applied, targeted and managed as they should be, are likely to deliver savings all the same.

Ethical working based on doing what is right for all, rather than what works best for those making the decision, has to once again become the norm rather than the exception. For it is this institutionalised and subsequently conditioned practice which has created many of the problems not only in finance, but also in the quality and efficiency within all parts of Government which the Coalition now faces, manifested in services ranging from traffic management to the NHS.

Making savings of the level that have faced George Osborne was never going to be an easy task. But simply addressing the problem by imposing cuts that are ultimately doing nothing less than changing the systems which support everyday people to live real lives and takes Government further away from the public who pay for it is never going to be right. Worse still; it won’t solve the problem.

image thanks to http://www.telegraph.co.uk

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