The (only just still current) government’s highest forecast for growth = 3-4%.
Lets say 3% growth for 10 years.
Current GDP is Circa £1.5 trillion 10 years growth at 3% results in GDP of £2.015 Trillion in 2020, a real increase of nearly one third or 515 Billion over 10 years. So lets go forward 10 years and apply Taxation to this increase in productivity at current base levels (approx. 38%).
This gives us £195 Billion extra income to the exchequer in the 10th year. (With a lot of luck and a lot of hard working taxpayers and a lot of export profits.) I realise taxed Company earnings/profits, VAT and duties and other taxes raise more but I’m assuming we need those to run the rest of the country not just pay debts. So lets just say that is it, in simplistic taxpayer terms.
The deficits for the next few years are going to be horrendous, it is estimated at about 170 billion for year 1. Add Interest at current Guilt yields of 4% ish and in 10 years time we have paid interest of 68 billion on the original 170 billion. Total 238 Billion.
So in the 10th year, all the taxpayers additional earnings can’t pay back all of what we borrowed in year 1 So reversing the sum what we really need in 10 years time (to pay back year 1) is 238/38*100 = 626 Billion in Growth which is 3.5% Growth – hence the chancellor’s 3.5% forecast to keep the markets happy until after the election. When they will admit this is highly unlikely and revert to half from growth and half from taxation & cuts. Simples.
To put this in context: There are around 32 million tax payers. So over 10 years the taxpayers have to increase their output (earnings) by 515,000 / 32 = £16,100 each which is £1,600 per year on average. OR they have to be taxed that much extra. And that figure is (given an average earnings figure of 26,000) 6% extra starting now! I don’t see the growth (0.00x% gets us absolutely nowhere!) So tax it is then.
We are really really going to struggle to pay this off.
Getting back on topic and to the point, Greece has a population of approx 12 million. At the same ratio as us they have approx. 6 million taxpayers. They have just borrowed 100 billion Euros ish at 5%. Their GDP is currently around 350 Billion Euros…. They think they are going to pay that back with cuts? It seems to me they need 4% growth just to pay the interest and 7% to repay the capital at 10 billion per year( over 10 years) that’s 11%. But they are saying 4 years? Greece must go bust.
I am but a lowly pleb with a calculator, so someone, possible a master of the universe, tell me what is wrong with my calculations?
In my personal view, national and international “Debt Jubilee” – is starting to look like the only way.
Update 6th May:
It looks like Martin Wolf agrees with me