Seriously wondrous

And then there’s the fact that in practice this additional cost will not be paid: it will be borrowed. Instead of running a deficit of £69 billion we could run a deficit of £71.5 billion (that’s and increase of £5 billion spent less £2.5 billion tax back).

That has an interest cost. The current price of 15 year borrowing is about 2.5% for the UK government. And that’s about the average borrowing period right now. So the annual cost of this is £62.5 million.

That’s £5,681 per life saved. You could argue that should be priced over 15 years: that (very crudely indeed, and to overstate things) would be £85,000.

But then you have to consider four other matters. The first is that government debt has never been repaid, on average. It rolls forever. So we’re very unlikely to ever repay the sum borrowed to pay to save these lives. People have always wanted to but UK government debt and there is no reason to think that will ever change. So, we’ll actually never pay the £227,000 per person whose life is saved: it will simply sit on the government balance sheet for ever. So we can ignore that.

So if we issue debt which we pay interest on in perpetuity we should only consider the cost of the interest for the first 15 years?

So our chartered accountant cannot do net present value calculations?

The second is that if we could create real inflation, as is the government’s plan, then whilst it is true that nominal interest rates would rise the real cost would fall: we’re actually paying too much for borrowing right now because we do not have inflation. Until recently when inflation was taken into account there was almost no real interest cost to government borrowing because the interest paid was close to the fall in the real value of the debt because of inflation. With PQE in play creating the inflation we need this could happen again: real interest costs could fall dramatically. Mark Carney says 1% is the most likely.

Nor, apparently, adjust for inflation? Given that real borrowing costs are currently below 1%, and Carney is suggesting they will rise to that number?

16 thoughts on “Seriously wondrous”

  1. “So our chartered accountant cannot do net present value calculations?”

    No, and hasn’t been able to for years.

    People have been talking recently about their first experience of Ritchie. The point I realised for sure he was an idiot was when he tried to describe discounted cashflow models and said “the cashflow are discounted, that is they are ignored”.

  2. He has allowed a little dissent on this matter:

    My wife is a GP: she questions some of the stats used in this report, and some of the logic.

    He doesn’t elaborate. I wonder what threat she wields to get that acknowledgement.

  3. He doesn’t need to do NPV he is just assuming that inflation is equal to or greater than interest rates so the cost is effectively zero.
    Of course this would be true for 2% rates and 10% rates

  4. So when Healey issued Gilts at 13.25% and 15%, which were not redeemed until a decade after Thatcher had brought inflation down to more moderate levels, the government paid no real interest?
    Pull the other one …

  5. Hang on, a few hours ago, PQE didn’t create inflation.

    I suppose I’m worrying because;

    George Osborne is as thick as pigshit and has no interest outside playing politics. I can quite easily see him nicking some of The Big Dicks ideas. He’s not above adopting socialist ideas (new tax changes on rents, dividends and the “living wage” ) purely for political purposes. So I can quite easily see him indulging in PQE.

    Secondly, our arts based meedja just publish press releases with no analysis whatsoever.

    So TBD can push an idea which his assumptions two hours previously would have invalidated. And the huge overriding worry that 30 million people will see no problem at all in printing £1 trillion to pay for TBD’s new string vest.

  6. Tax take as a percentage of GDP is about 38% currently. So on £5bn spend we would be lucky to get £2bn back, not £2.5bn.

  7. so the consolidated funds that fuelled the Forsytes and the 3% War Loan have never been redeemed…pull the other one Dickie boy. Just the other month, didn’t Osborne tell us that we had finally paid for World War One?

  8. The guy can’t do a decent financial analysis. Instead of working out the cost of financing the expense and working out the present value of the debrt repayments, just take the original cost. What a moron.

    The average cost of 7 day working would be several hundred thou per saved death, and most of those (the critically ill) are probably well over 70 so not much life expectancy either.

  9. “The average cost of 7 day working would be several hundred thou per saved death”
    Could you show your working on that one, Alex? If this is purely a matter of NHS services being reduced at weekends, then going over to a 7 day week will just move some of the weekday work into the other 2 days. The only extra expense would come of negotiating the wage deal with the medical mafia. So they’re on the same working structure as every other service industry in the country.
    Did it really cost that much to have 7 day opening of Tesco?

  10. @ bis
    It certainly cost some money to have seven-day opening at Tesco, just as it cost them money to open 24 hours on six days. But Tesco reckoned that they would get extra sales income which would be more than enough to pay for it. The NHS gets no income.
    Tesco actually had to hire more staff – the NHS would just need to redeply some of the staff it has got to make staff levels more proportionateto the workload. An intelligent move (so it won’t happen) is to have more male staff on duty at A&E on Friday and Saturday nights if you’re expecting drunks, including one or two from the Guy’s/Tommy’s/Bart’s/UCH rugby team.

  11. George Osborne is as thick as pigshit and has no interest outside playing politics. I can quite easily see him nicking some of The Big Dicks ideas. He’s not above adopting socialist ideas (new tax changes on rents, dividends and the “living wage” ) purely for political purposes. So I can quite easily see him indulging in PQE.

    What it says on the tin!

  12. john – at least one hospital was glad to have a police special as a nurse. Any trouble in the hospital – and not just A&E – and he could be called to help. And arrest.

  13. @ Martin Davies
    I happily believe you. Although I was thinking of deterring trouble as much as dealing with it. 50-odd years ago, the friendliest, most visibly gentle, prefect was the 1st XV lock, 6’4″ when 6′ was exceptional and broad-shouldered, he never needed to use his strength and I do not remember him raising his voice.

  14. @john77
    If it was only Tesco, no doubt they could have done the increased sales/increased costs calculation. But in a competitive market, all the supermarkets went 7 day. And when it comes down to it, you only buy so many tins of beans a week. So, in the end, Tesco paid a bit more wages for Sunday & few less staff were needed on Wednesday, Customers got service when they needed it – not when Tesco felt like providing it.
    But not the philosophy the NHS is built on, is it?

  15. On the supermarket thing:
    I used to pick up Dad’s prescriptions from Sainsbury’s pharmacy. Very efficient, Sainsbury’s pharmacy. Couldn’t fault them.
    Now the NHS doctor’s prescriptions they were working to….let’s not go there, eh? But they were still getting them a month after his death.

  16. Wot John Miller said.
    Day 1: we can tax away any inflationary effects of PQE
    Day 2: PQE cannot -.CANNOT – cause inflation.
    Day 3: PQE can deliver the inflation we so desparately need.

    He cannot rber what he’s supposed to believe from on eday to the next.
    See also migration.

Leave a Reply

Your email address will not be published. Required fields are marked *