Britain is broke and the future looks worse! National bankruptcy is coming, just like in the USA.
28/06/2009

================================
SUNDAY TELEGRAPH 28.6.09 
1.UK's debt will quadruple unless drastic steps are taken, says S&P
Britain's national debt will quadruple to peaks only ever seen in the wake of the Second World War unless the Government takes drastic steps to address the pensions and ageing crisis, Standard & Poor's has warned.

 

By Edmund Conway 

The ratings agency has calculated privately that the UK's public sector debt could quadruple from its current level of just over 50pc of economic output to 200pc or above within the next four decades as the cost of servicing public sector pensions, ballooning social security costs and healthcare burdens becomes overwhelming, The Sunday Telegraph has learned.
The warning is doubly sobering since S&P last month placed Britain's debt on to "negative outlook" – an explicit signal that it could soon be downgraded.

 

Although the agency calculated two years ago that the effects of an ageing population, alongside high pensions and healthcare costs could push Britain's net debt up above 150pc by 2050, it now fears the added cost of the financial crisis means the debt mountain could in fact rival that in 1945, when the cost of fighting a world war pushed debt well beyond 200pc of GDP.
The warning coincides with research showing that the true size of the UK's unfunded public sector pensions deficit, which needs to be funded through taxpayer's cash, is now £1,177bn – a staggering £20,000 for every person in the UK. A study for the highly-respected British-North American Committee, written by former Bank of England economist Neil Record, finds that the UK shortfall is far more severe than in the US or Canada.
Moritz Kraemer, head of S&P's sovereign ratings in Europe, Middle East and Africa, said Britain was facing a double challenge – first, to mend its books in the wake of the financial crisis and then to overhaul its economy drastically to stifle the pensions crisis. He said Britain was facing deficits unlike any before in peacetime history.
"We don't think they are willing to look into this fiscal abyss without taking any action," he said. "Following the financial crisis, the proportion of the problem is significantly larger than we thought but the Government has time to react to address these issues." The shortfall may mean having to raise taxes, cutting public pensions or healthcare spending, he added.
The agency said that unless Britain and its fellow leading Western nations took action to stem these costs, "the ratings of the high grade sovereigns would be very different."
Although the UK is the only country on so-called "negative outlook", meaning the agency is considering stripping it of its AAA rating for the first time, Mr Kraemer said the gold-plated rating could be salvaged if the next Government proves it is willing to bring the public accounts back in order.
He added: "We take pre-election pledges with a pinch of salt; they don't always materialise. Actions speak louder than words. It's easy to come up with solutions on paper but difficult to make them stick."
================= AND ---------->
2. New £7 billion tax black hole in public finances
Britain's public finances face a new £7 billion "black hole" after thousands businesses claimed back VAT overpayments they made to the Treasury.

 

By Patrick Hennessy and Melissa Kite 

The businesses submitted the claims after the Government was defeated in a series of court rulings which culminated in a High Court judgement last year.

That decision opened up the floodgates for businesses to claim back any overpayments dating back to 1973.

 

The multi-billion pound bill is a fresh blow for the government, which is already embroiled in a fierce political row over future levels of public spending and debt.

Last night Alistair Darling, the Chancellor, faced questions about his knowledge of the scale of the problem.

Lord Oakeshott of Seagrove Bay, a Liberal Democrat Treasury spokesman, said his party would table parliamentary questions on the issue tomorrow and accused Mr Darling of presiding over a "cover-up culture."

The revelation comes amid evidence that a dispute has flared up among cabinet ministers over how strongly to push the line that the next general election will be fought on a battlefield of "Labour investment" against "Tory cuts".

Gordon Brown has taken a forthright stance on the issue, insisting overall public spending will rise in the next few years to cope with the effects of the recession despite being accused of not telling the truth by the Tories – who insist there will be cuts whichever party wins the election, which must be held by June 2010.

Some ministers, including Mr Darling and Yvette Cooper, the Work and Pensions Secretary, have reportedly argued with the Prime Minister and believe that the government should be more candid about problems posed by Britain's £175 billion budget deficit.

Hilary Benn, the Environment Secretary, admitted on Saturday that his own department was facing budget reductions, and there would have to be "real choices" on spending.

The latest blow to Britain's battered finances is the result of several court rulings dating back to a 1996 decision by HM Revenue and Customs (at the time HM Customs and Excise), to bring in a three-year "statute of limitations" on claims by businesses for the repayment of overpaid VAT.
Before then, businesses could reclaim overpayments dating as far back as 1973 – the year that VAT was introduced.

The Customs decision was challenged in a series of court cases culminating in the House of Lords ruling in 2008 that Customs had not acted properly.
To cope with this, HMRC gave businesses a year, with a deadline of 31 March 2009, to make claims.

As big accountancy firms piled in to what one tax expert called a "once in a lifetime opportunity" HMRC was overwhelmed by the scale of the claims, many of which sought compound interest on overpayments, according to government insiders.

One expert at the leading accountancy firm Deloitte said he understood the total amount at stake to be £7.25 billion – enough to deal a severe blow to Britain's public finances.

In a rearguard action, HMRC has begun the process of challenging the legitimacy of thousands of the claims on the grounds they are not reasonable or that they should be liable for simple, not compound, interest.
Lord Oakeshott said: "This is another gaping hole in Britain's already overstretched public finances."

"It is yet another body blow to Darling's credibility and Britain's credit rating. When did he know the size of these claims? Why didn't he then come clean and what provision did he make for them in his budget?
"Our Debt Management Office has to sell £1 billion of gilts every single working day to fund our deficit. Investors around the world who have to foot the bill are now seriously worried that the Government is turning a blind eye to our ballooning deficit and public sector pensions bill. If Darling was director of a public company the lenders would want his head on a platter.
"The Treasury's cock-up and cover-up culture is deeply damaging to Britain."

A spokesman for HMRC said: It is not possible to say how much will be repaid until all claims have been verified.
"HMRC has committed extra resources to ensure that claims are paid as quickly as possible. However, payment of claims is subject to verification.
"Refusal and reduction of claims is currently running at over 50%. Many claims also involve complex issues and relate to accounting periods for which records may not have been retained.”
================= AND ---------->
3.  S&P warning shows Britain is out of credit
Demographics is destiny, or so they say. Baleful as the financial crisis has been, painful as is the impact on many households of the housing crash and the rise in unemployment, they still cannot rival the potential threat and impact of the pensions and ageing crisis facing us in the coming decades. [The whole pensions avalanche which is looming up and will hit us soon will be - if I get time ! -  the subject of a separate posting ]  If you were looking for proof, look no further than the potential impact on Britain's national debt.

 

By Mark Kleinman

One of the reasons we know this crisis is no ordinary recession is the prodigious amount by which it is likely to push up the national debt. Before the collapse of Northern Rock, Britain's net public debt to gross domestic product ratio was down at below 40pc – the level widely considered to be consistent with a well-managed economy. In a couple of years' time it is likely to be rather closer to 100pc, thanks to the extra debt incurred in the bank bail-outs, the tax foregone because of the recession and the cost of trying to keep the economy afloat.

But as threatening as this is, it is nothing in comparison with the effect of ageing on our economy. We have committed to paying generations set imminently to retire pensions more generous than we ought to have; providing healthcare more expensive than we anticipated. Tie this to the fact that the population is greying, meaning there are ever fewer taxpayers to support those in retirement, and you have the recipe for a full-scale fiscal disaster.

As my colleague Edmund Conway reports on our front page today [lead story in this posting -cs] , that is precisely what Standard & Poor's has mapped out. Its calculation that Britain's national debt will rise to 200pc of GDP or above – the kind of levels we have only ever reached after the Second World War – is truly disturbing.

That the message comes from the ratings agency which only recently cautioned the UK over the precariousness of its triple-A credit rating is all the more sobering. Fortunately, unlike the financial crisis, there is still time to act on the pensions and demographic crisis. One solution will be to address the ballooning cost of public sector pensions. It is economic madness to continue offering final salary pensions, that are all but extinct in the private sector, to state workers. This is only a beginning – we will all have to reassess our expectations for retirement – but it is a relatively low-hanging fruit. And if the Conservatives win the next election, it is something they must tackle at the earliest possible opportunity.


 
 
Insert key words to search our site and archives
















'I am the vine, you are the branches; he who abides in Me and I in him, he bears much fruit, for apart from Me you can do nothing. If anyone does not abide in Me, he is thrown away as a branch and dries up; and they gather them, and cast them into the fire and they are burned.'
John 15:5,6

© Copyright 1995-2018 Designed by www.visual-craft.com
visitors counter
8481410