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Tuesday, 16 March 2010

EU Still Underestimates the British Problem

News media today [March 16] are agog with the fact that the EU Commission does not find the British strategy for resolving the public sector deficit to be satisfactory.
Moody's has again warned that the AAA rating on British public debt is under threat; but the fact that the agencies still give the UK this sort of rating reinforces the impression of their fundamental incompetence.

The big problem is not the size of the government's debt: that is resolvable by foul means - especially inflation - if push comes to shove.

 The crisis is really about what the government spends as compared to what the nation earns. When that cassette of the tax credit system went missing a few years ago, there were already twenty-five million names on it, of adults and children: virtualy all of whom also receive child benefits. There are more than four million public sector employees, many of whom qualify for tax credits and child benefits. There is a dozen million of old-age pensioners paid by the state. There are at least five million not-in-work among the adult population under 65, and over a million NEETS; plus a million in the universities and further education. Accept that there is double counting of those who are doubly or triply remunerated by the state, and you have a total of FORTY-EIGHT MILLION incomes being paid in full or in part by the state.

To pay those incomes, the recipients of the incomes all have to pay more and more taxes: as do those few taxpayers who receive no benfits. While millions would suffer only minor effects from the loss of small income supplements, tens of millions absolutely depend on the state, for all their income or the majority of it. This tax-and-spend whirligig is Gordon Brown's proud creation: he thinks it represents 'fairness' and the elimination of poverty for many of those millions. Anarchy looms if any significant number of those incomes is abolished or reduced significantly.

So how can a government make 'meaningful cuts' in state spending, and divert tax revenue to paying-back the public debt, without hacking at the real economy? The few independent earners who have no benfits pay taxes on their incomes and on their purchases to support the whirligig; and most of that money, once taken into the tax system, remains dizzily circulating through the benefits system to people who face constantly rising taxation.

That's what the politicians dare not admit to themselves, let alone to the electorate! The situation is far, far worse than any of them can understand. 

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