Ok, quick explanation of why all the government cuts are necessary, very much in layman's terms
I am leaving out GDP, as that figure has nothing to do with government income and only has any point if tax was at 100%
Lets look at a family, they are comfortably off and earn £51,400 per year after tax.
They have been spending too much on credit cards though so owe £77,100 (this is 20% more than they earn) to credit cards and don't have a mortgage or house to secure these on, so there is nothing to sell to repay them other than the items they have purchased them selves (which will have dropped in value, or been consumed). This is 151% of what they earn each year - so if they spend every penny just on paying off debt, didn't eat or pay rent it would still take 1.5 years to pay off!
Because of their lifestyle, they are giving money to their elderly parents who have no pension or savings so are having to pay it out of current funds.
With all of this they are spending £66,900 each year, dispute their already heavy debt. Which means they are spending £15,500 more each year than they earn (that's a 20% increase in their debt just the next year), and as interest rises on the debt, this will go up with out increasing spending any more.
here's those figures in a more succinct format.
£51,400 Income
£66,900 Expenditure (120% of income)
£77,100 Current debt (151% of annual income)
£15,500 annual increase in debt (20% of debt)
If a family was in this condition, they would be expected to go bankrupt as they would not be given any more loans and wouldn't be able to cover the debt.
Change those numbers from thousands to billions and that was the state of the country at the end of 2010, and it has gotten worse since.
If the UK goes bankrupt, no other country will trade with us - we rely on imports for most of our food and no longer really have a manufacturing base. That would instantly make us a third world country begging to survive. There would be no pensions, no retirement, no benefits and no NHS - and that is the only alternative to cuts! (The Thatcher government dealt with the last massive public debt by selling off all our utilities, we don't really have anything left to sell).
So what I ask is - is it worth putting up with cuts for a few years while we get this sorted, or would your rather face the alternative?
1 comment:
Not really anything like as simple as that, and not what the Lib Dems were saying BEFORE the general election.
Another analogy might be where you decide to pay off your martgage rather than fix the roof. As a result of paying off your mortgage your house collapses and then you are in an even worse situation than before.
The danger of cutting too much is that you stunt growth, which in turn means you are not generating the wealth to pay off your debt.
The cuts are now kicking on when growth over the past 2 quarters was 0%, so this is not a good time to cut.
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