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?