Posted by It’s been a day all about what the Government is going to cut. Details have been put forward about how the new Government is going to make cuts worth £6.2 billion. This is all well and good but with the scale of the numbers involved it is often difficult to know how much this represents.
I came across a rather interesting comment on Nick Robinson’s Blog that puts this into perspective quite well with regards to how much we will still need to be borrowing.
This chap I know, he currently earns £54,100 pa but his outgoings are £69,700 pa yet he goes to the bank and asks to borrow another £15,600 this year to cover the difference between his income and expenditure.
The bank manager coughs and says this will be difficult because you currently have a mammoth overdraft of £890,000 which needs servicing at around 4% pa.
That is, you are already paying interest of £35,600 pa on your overdraft and you want to borrow even more?
Mr. Optimistic says Ok, look, to demonstrate my good intentions, I will cut my spending by oooh … £620 this year.
If you were the bank manager, would you lend any money to this chap?
No – I would’nt either.
Unfortunately his name is Mr. UK plc and his real debt is the above numbers with several noughts tacked on i.e. hundreds of billions of pounds.
I quite like this simple analogy and it shows that despite the efforts being made to cut spending I think we need to be doing a lot more as well.