Making the Boring, Not Boring; the Deficit and the Fiscal Charter explained simply

Seems like we’re “generation debt”: all we hear is student loans, overdraft and stuff about UK’s budget deficit – which is apparently around £90 billion… but what does this actually mean?

 

What is the deficit?

The Deficit Decoded; the gap between what the government spends and what it receives in tax

The Conservatives want a surplus by 2020. Achievable?

The deficit is the gap between the amount the government spends and what it receives in taxes. It’s different to the national debt which is the total £££ the UK owes to investors from the UK and other countries.* (FYI we owe a lot to America).

Each year the government spends money on things like schools, the NHS, the army and benefits. This money mostly comes from taxes collected by HM Revenue and Customs.

The Chancellor of the Exchequer (currently George Osborne) is in charge of the country’s finances. They set the budget each year which outlines how much we pay in tax, and what gets spent where (we explained how the budget works here).

* For more information on who the UK owes money to take a look at this BBC report and blog post by Sky economics editor Ed Conway.

How it works:

If one year the government collects £100 in tax but spends £150, then the deficit would be £50.

Alternatively if £100 is collected but only £80 is spent then the government would have £20 left over at the end. This is called running a budget surplus.

In real life we’re talking a lot more money than this. The UK deficit is currently around £90 billion.

 

Is running a deficit normal?

Since the global financial crisis of 2008, “deficit” and “borrowing” have become dirty words. Understandably, the public don’t seem to like the idea of irresponsible governments overspending.

How the financial crisis happened;

Financial crisis in a nutshell; the banks ran out of money – the government had to lend them money.

Find out more about why the government had to bail out the banks; the financial crisis explained

The Conservatives claim that the current deficit is all Labour’s fault, as the previous Labour government was running a deficit at the time of the financial crisis. Expect to hear this a lot around election time.

Considering all this, it may surprise you that running a deficit is the norm for a lot of countries.

Whilst it is true that Labour was running a deficit before the crash, they had previously ran a budget surplus between 1998 and 2001. Before that point the UK (under Conservative rule) had run deficits each year since 1975 (with the exception of three years between 1988 and 1990 where there was a small surplus).

Which governments ran deficits?

UK budget deficit and borrowing by Mark McCormick for the Guardian  Deficit, national debt and government borrowing - how has it changed since 1946? VIA FLICKR https://www.flickr.com/photos/dullhunk/7419247784

Labour aren’t the only party to run a deficit – UK budget deficit and borrowing by Mark McCormick for the Guardian Via Flickr

 

Many well-respected economic experts like former Bank of England governor Mervyn King and senior Treasury official Nicholas Macpherson suggest that the banks are more to blame for the current situation, rather than Labour overspending.

However, increased government borrowing during the crisis (partly to save the banks, partly to pay for benefits as more people lost their jobs) meant the UK deficit shot up from around £34.5 billion to £90 billion and continued to climb. Ouch.

 

Austerity Measures vs ?

The Conservatives promise to cut the deficit and deliver a budget surplus by 2020.

Chancellor George Osborne’s austerity programme was supposed to bring the deficit down. In simple English: lowering government spending. Some of the austerity measures have proved controversial; such as cutting tax credits.

Rather than making cuts, some argue there are other methods to reduce the deficit. This include closing loopholes so that big businesses and non-doms pay the right amount of tax, and investing in public services.

The economist JM Keynes suggested something similar during the Great Depression of the 1920s. The idea was use unemployed workers to work on public projects. The workers would start spending their wages, which would get the economy moving again.

Is the Conservative 2020 deadline achievable? George Osborne’s original plan was to eliminate the deficit by 2015, but missed this target; managing to reduce the deficit by half.

This means that although public spending is coming down, the UK is still overspending and doing nothing about our national debt.  Are you sitting down? The UK national debt is currently around £1.5 trillion. Wowzers.

Global Debt

Deficit; UK debt as measured by GDP

In the red; government debt as a percentage of GDP… the debt-to-GDP ratio is the ratio between a country’s government debt and its gross domestic product (GDP). A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt.

Don’t panic though – the International Monetary Fund thinks the UK can survive with high levels of debt forever. Phew.

 

The Fiscal Charter AKA George Osborne’s plan to save the UK economy.

George Osborne Chancellor of the Exchequer Outside 10 Downing Street

Chancellor George Osborne wants to make it law to run a surplus

Current Chancellor George Osborne has created the Fiscal Charter. It’s a proposed new law which bans the government from creating a deficit in “normal” circumstances. This is defined as when the economy is growing healthily.

On paper this sounds like a sensible idea, no?

However, if the charter is passed it would make it harder for governments to borrow money for public investment. Why is this bad? Labour List explains in language we can understand:

“No one thinks it is wise to max out the credit card to pay for the weekly grocery bill, but just as families have a mortgage to pay for their home, so it makes sense to borrow for the infrastructure – like broadband, transport, scientific facilities for universities – which will increase our economic productivity and growth.”

However, perhaps it’s not a good idea to compare economics to your household budget;

 

 

So, what’s the answer? Suggestions on a postcard, please.

 

Deficit learnings; the current motto is “don’t overspend”, but it wasn’t always like this.

It’s hard to know who to believe. It’s even more confusing when politicians disagree over whether spending more than your income is good or bad.

What we do know: lending and borrowing is risky, so you had better be sure people can pay it back.

Will the Fiscal Charter work? Think we’ve missed something? Let us know in the comments below or email sor@scenesofreason.com

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What The Budget 2015 Means For Young People

First we had a budget in April; didn’t understand that. Now we’ve had a summer “emergency budget”? What’s that all about?

 

Hands up who was confused by the Budget 2015?

Changes to the Personal Allowance of Tax from Budget 2015

FYI; 81.6% of the UK fall into paying the basic rate of tax

George Osborne’s first budget of the new Conservative government was full of contradictions. On the one hand he is cutting £12 billion pounds from benefits (boo); one the other he’s creating a National Living Wage of £7.20 PH (YAY!)

The Emergency Budget 2015 Explained

The announced changes were met with cheers from the Tories, and outrage from the Opposition (Labour, Lib Dems, SNP, UKIP Plaid Cymru and the rest).

The Guardian has reported that the new “Living Wage” isn’t enough to make up for the cuts to welfare. People who claim tax credits could be £1,000 worse of a year according to the Institute of Fiscal Studies. Doesn’t sound great.

So how does the new budget 2015 affect you? The BBC has created a Budget Calculator. You can try it out for yourself on the BBC website; we thought we’d explore how the changes could affect different people.

 

Tax and Moneys

For Starters

Let’s say you’re 21/22. Perhaps you’ve just left university, maybe not.  You have a job on the minimum wage (currently £6.50 PH) working 40 hours or so a week. Your annual earnings would probably be around £13,000.

Calculation from the BBC showing if you are better or worse off from Budget 2015

£80 better off. Get in! Via BBC

Because the tax-free allowance is going up to £11,000 you’d end up around £80 better off. Yipee!

 

There’s more

So, lets look at the claim from the Guardian that due to changes to tax credits some people could be £1,000 worse offTax Credits are benefits (extra £££) given to people who look after children, to disabled workers and those on lower incomes.

In the new budget “working-age benefits, including tax credits and Local Housing Allowance, will be frozen for 4 years from 2016-17”

The calculator says a married couple with a combined income of £21,600 and two children could be worse off by £1,113. Hmm.

Calculation from the BBC showing if you are better or worse off from Budget 2015

Looks like the Guardian was right. Ouch. Via BBC

This was based on one partner earning £19,000 a year on full-time hours; the other working part-time and earning £2,600. Both at 25 (still young!) and the age you’ll become eligible for the new “Living Wage”.

Though they are £80 better off thanks to changes to income tax, on the whole they make a loss because they are getting less tax credits. In fact, the calculator suggests that in order to keep the same income they had before, the partner (who originally earned £2,600 a year) would have to earn an extra £10,978.56! Whether this is the case, we don’t know. But we sure hope not!

Calculation from the BBC showing if you are better or worse off from Budget 2015

Breaking even

Removing the two children from the equation means we’re back to £80 better off. Does this mean we shouldn’t have kids?!

Looks a bit like The Guardian 1, Osborne 0.

 

So are things better for older people?

An older married couple with a combined income of £85,000 would actually be £221 better off. Say what?

Calculation from the BBC showing if you are better or worse off from Budget 2015

Osborne’s changes are designed to help those on “middle incomes” Via BBC

This is again because of the changes to the tax thresholds where you pay the higher rate of tax.

Does this mean the budget will be better for the rich and worse for the poor? Although the media might say “YES”, it’s a lot more complicated than that. Like any example these calculations are very specific. Everyone has different circumstances so it’s probably impossible to come up with a basic rule which covers everyone.

It’s also worth saying (because the BBC did) that these figures are estimates only. They don’t include all the changes made; just the ones made to income and earnings.

People are still unhappy though. And if you’re under 25 you might be too. Whilst others get the fancy new “Living Wage” of £7.20 PH you’re going to be stuck on £6.50 PH. Minimum-bleugh.

 

What the calculator doesn’t include

The budget 2015 wasn’t just about tax and income; it covered a whole range of topics. The speech was even a few minutes longer than usual. Crazy times.

Forget University

One of the major policy brought in by the coalition government which affected young people was the raising of tuition fees. The new budget only raised them in line with inflation; but Student Maintenance Grants are being scrapped. These are non-repayable £££’s which are given to students from low-income backgrounds.

Instead of grants students will have to take out Student Maintenance Loans instead. Conservatives say “Don’t worry, you won’t have to pay them back until you’re earning £21K +”. As well as paying back tuition fees.

At the moment around half a million students in England receive grants. However some people aren’t too bothered;

https://twitter.com/JordanPlatten/status/619153109433118721

 

Where am I going to live?

So, you need somewhere to live. Don’t count on the government paying however. The Conservatives are stopping the automatic entitlement to housing benefit for 18-21 year olds.

Housing benefit is a regular £££’s to help pay your rent. It’s paid by your local council.  You can claim it if you’re on a low-income or claiming other state benefits.

 

Why the hate for the young?

So, not the best of times if you’re young and/or a student. George Osborne says he wants to make the tax and benefits system fairer.

“We have to move Britain from a low-wage, high-tax, high-welfare society to a higher-wage, lower-tax, lower-welfare economy.

For Britain is home to 1% of the world’s population; generates 4% of the world’s income; and yet pays out 7% of the world’s welfare spending. It is not fair to the taxpayers paying for it. It needs to change.

The best route out of poverty is work. It is not acceptable that in an economy moving towards full employment, some young people leave school and go straight on to a life on benefits.

– George Osborne’s Budget 2015 speech

 

It’s not just young people who are affected by the budget. But even so, the Guardian asks “What have young people done to deserve George Osborne’s contempt?”. We’d love to hear from Mr. Osborne himself. So if you’re reading, George – is it personal?!

 

Budget 2015 learnings; some good, some bad, some ugly.

Is Budget 2015 unfair to young people? Or should people stop moaning about benefits and go and get a job?

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The Emergency Budget 2015 Decoded; what’s changing for us now?

Now the Conservatives are in power, Chancellor George Osborne announced an Emergency Budget to improve Britain’s finances. As always, Scenes of Reason decodes the Emergency Budget 2015 for y’all. 

 

The Emergency Budget 2015; what was said?

In Brief

Emergency Budget; The Deficit Decoded

The Conservatives want a surplus by 2020. Meaning lots of cuts. Achievable?

Big cuts are coming to the public sector. But reductions in tax for those with low and middle incomes might sweeten the deal.

As in the previous budget, Osborne started with the good news. Britain’s economy is growing faster than any other advanced economy in the world. In fact the growth for last year was 3% higher than the 2.4% estimated.

But. There’s always a “but”.

The Greece Crisis shows the importance of getting our affairs in order.

The Conservatives have announced further cuts to benefits and public services. This was to be expected; it’s what they said they would do. People expected that the cuts would be quick and brutal. But the big surprise of the day was that the cuts announced by Osborne will be brought into effect much more smoothly and over a longer period of time.

No more borrowing; the Chancellor pledges to run a budget surplus by 2020.

What is the Budget?

 

Key Points

– £12 billion to be found in cuts to Welfare benefits. These cuts will be detailed in a document released tomorrow.

The Emergency Budget; a magician pulls a rabbit out of a hat, the announcement of a National Living Wage was greeted with cheers

Like pulling a rabbit out of a hat; the big announcement was a “Living Wage”

– Sorry Students; your Student Maintenance Grants are gone. You’ll have to get a loan from 2016/17. But there will be a consultation on freezing no repayment until you earn £21,000.

– The amount you can earn before you pay any tax, goes up to £11,000. The amount before you pay highest amount of tax goes up from £42,385 to £43,000 next year.

– Introduction of the National Living Wage of £7.20PH for those aged 25 and over. This will rise to £9PH by 2020.

– £8 billion will go to the NHS as promised in the Conservative manifesto.

– Nom-Doms beware. Permanent Non-Domicile status (where you pay less tax if you are registered as living abroad) will be abolished and you will no longer be able to inherit Non-Dom status. Osborne nicked this idea from Labour’s manifesto. Cheeky.

 

Emergency Budget; an usher hands out sweets at a performance

No more giveaways. Cuts to benefits means work pays.

– More money will be given to HMRC to catch tax evaders and tackle tax evasion. Smart move genius.

– The Bank Levy (which taxes the debts of banks) will be replaced by a new 8% charge on bank profits. Is this an attempt to stop HSBC moving to Asia?

– Fuel Duty (tax on fuel) remains frozen. New bands for Vehicle Excise Duty (tax paid on vehicles on the roads) to be introduced; the money collected will go into making new roads. Neat.

 

– Create a “Northern Powerhouse”; Manchester will get control of the fire service, a land commission and employment programmes. Similar options will be discussed with other northern cities. Local authorities around the country will get the power to set Sunday trading hours in their area.

– Changes to inheritance tax means parents will able to pass on properties worth £1 million to their children without being taxed. Londoners rejoice.

The Emergency Budget has to find £12 billion in cuts

No more giveaways; lots of cuts to benefits and the public sector

– Companies pay Corporation Tax (a tax on their profits). The amount of tax they pay will drop from 20% to 19% in 2017. It will lower to 18% in 2018.

– Watch out BBC. They’ll be funding free TV licences for over-75s; a duty recently held by government.

– 18-21s will “earn or learn”. There will be no automatic entitlement for housing benefit, except for the vulnerable (who aren’t able to look after themselves due to factors including mental illness or physical disability). Benefits for those of working age will not rise for four years. The total benefits cap for unemployed families will be reduced to £23,000 in London and £20,000 for the rest of the country. Child Tax Credits limited to two children per household from 2017. These cuts to benefits did not go down well with the Opposition parties.

– 30 hours a week of free childcare for parents of 3-4 year olds.

– Rents for social housing reduced 1% a year for the next four years.

– You can sleep easy, Britain; there will be annual increases to the defence budget.

 

What are people saying?

There were lots of boos from the Opposition parties when the benefits cuts were announced. Labour Deputy leader Harriet Harman claimed he was making life worse for working people. She also questioned his figures on economic growth. But she also said that the Labour party was prepared to look at sensible proposals and not just block everything the Tories come up with. Seems fair.

Online Natter;

Twitter Reaction to the Emergency Budget 2015

#budget2015

Explore in detail

Emergency Budget 2015; the key points

Chancellor George Osborne’s Emergency Budget 2015 Speech

Opposition Leader Harriet Harman’s speech responding to the Emergency Budget

 

Budget 2015 Explained; the cuts will be slower than expected, but they are coming. Not good news for students and under 21s; no grants or higher wages for you. However, tax breaks and the “living wage” are an attempt to put the Conservatives on the side of working people.

Do you agree with the cuts made by George Osborne in the Emergency Budget? Do you trust the Conservatives to sort out the economy?

 

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The UK Budget Explained And Why Is Today Important?

There is no arguing that budgeting is important, but doing so is not always so easy. Though it gets a little more complicated when you’re managing funds for the whole country.

The guy above is George Osborne. He is Chancellor of the Exchequer – which is a posh way of saying he’s in charge of the country’s money.

 

The UK Budget: Explained

UK Public Services paid by Taxes

Will we see further cuts to Public Services?

The Budget (it’s important so it gets a capital B) is a breakdown of where the money from Her Majesty’s Treasury is spent.

Money is collected through tax by Her Majesty’s Revenues and Customs and is spent on public services – such as roads, hospitals, education.

The Budget is usually released in March – just before the start of a new financial year, which starts in April (we’ll leave that one for another time).

 

 

What’s Going On Today?

At 12.30PM today, Osborne will announce the new budget to Parliament, outlining the state of the British economy and the changes the new Conservative government will be making. It will be a chance to see if he sticks with his earlier promises made before the election.

If you’re a big politics fan you can watch on BBC Parliament (a whole TV channel devoted to British politics .. who knew?!) from 12PM.

What Does This Mean?

This is an emergency budget. The Tories weren’t expected to win a majority so the previous budget was a compromise with what they wanted to do, and what they thought they’d be allowed to do with their pals in coalition.

Now we have a Conservative majority George Osborne can pretty much do what he wants.

Watch out for phrases like Long Term Economic Plan (we have a plan) and Stable Growth (Progress slower than expected).

Read our breakdown of the previous budget: The Budget: Decoded

2015 Labour Manifesto Explained in 6 minutes

Yesterday the Labour party released their manifesto.

This is a BIG DEAL.

In their 86 page manifesto, they set out what they will do if elected on May 7th.

That means lots of promises, some sweeping statements, and lots of persuasion to try and win our votes.

Luckily for you, we’ve saved you a bit of time. We’ve decoded what Miliband be sayin’…

 

Labour Say: Every policy will be paid for without needing any additional borrowing. Labour will reduce the deficit (gap between what the government spends and what it receives in taxes) every year and run a surplus (bring in more money in taxes than it spends and have some left over.) “as soon as possible” … but they don’t actually say when this would be…

 

TAX, TAX, TAX:

People with an income of £150,000 and more will contribute a squidge more with a 50p rate of tax… this is an increase from 45% at the moment. Don’t know what that actually means? Neither did we, but we wrote four lines to try to explain…

 

tax.001

 

No increase in the basic rates of income tax or national insurance. So the amounts of tax you pay stay the same, but the amount you earn before you pay these different rates will change.

Introduce a lower 10p starting rate of tax for low earners.

Raise the minimum wage to more than £8 an hour by October 2019.

 

Labour manifesto.002

 

Goodbye to the bedroom tax. Does that mean we don’t have to learn what that is?

 

WORKING IT

Zero hour contracts? You’re done with, you’re history, adios. Didn’t know what they are, Zero Hour Contracts: explained. 

Promote a living wage – a living wage being what people realistically need to earn to be able to live on.

Compulsory Job Guarantee – Young people out of work for a year get a paid starter job – which they must take or lose benefits.

Guarantee apprenticeships to students with the right grades. Companies working with major government contracts must offer apprenticeships.

Enhance technical education (think engineers, mechanics etc.) and training by creating new technical degrees and supporting part-time study.

Work benefits for 18 to 21-year-olds to be replaced with a new Youth Allowance depending on recipients being in training and targeted at those who need it most.

Dad, can I have some money? Labour will double paid paternity leave for fathers from two weeks to four weeks

Parents who need childcare you have an extra 10 hours, so do what you will.  Labour are promising to give 25 hours of free childcare for working parents of 3 and 5 year olds. That’s up from 15 hours.

 

WE DON’T NEED NO EDUCATION

Ensure smaller class sizes for 5, 6 and 7 year olds.

Private Schools have to muck in and help with raising educational standards in state schools before they get economic help from the government.

Ensure all young people study English and Maths to age 18…. get those calculators out kids.

Cut university tuition fees from £9,000 a year to £6,000.

 

“AN NHS WITH THE TIME TO CARE”

You will be able to see a GP within 48 hours, no questions asked.

By 2020 you will be seen within a week for cancer appointments and tests, and training and support will be offered to GPs so they can spot the early signs of the motherfu….

Mental health will be given the same priority as physical health.

Encourage the use of mindfulness in young people… Is yoga going to become a compulsory sport then Ed?

Invest £2.5 billion more than the Conservatives into the NHS to fund 8,000 more GPs, 20,000 more nurses and 3,000 more midwives.

 

Health, education and international development will be protected from any cuts. That’s right – NO CUTS. REPEAT: NO CUTS TO HEALTH, EDUCATION AND INTERNATIONAL DEVELOPMENT.

 

ENERGY AND HOW TO LOWER THOSE PESKY EMISSIONS

Turn up the heating… Labour will freeze energy prices until 2017.

Work to remove the carbon from our electricity supply by 2030.

Create a million green jobs (working in the low-carbon energy sector). Do we get jobs in all the other colours as well?

Push for an ambitious target at the Climate Change Summit in Paris cut global emissions to zero in the second half of this century. We wonder what Climate change is anyway? CC:decoded. 

 

HOME SWEET HOME

At least 200,000 new homes to be built by 2020, and Labour promise to give private renters a fairer deal too.

Work towards Three Year rents becoming the norm (rather than 6 or 12 month short contracts) and stop landlords hiking the price up each year.

 

SOCIETY

Are you 16 or 17?  YOU WILL BE GIVEN THE VOTE! #congrats

Rail fares will be frozen for a year.

Call the police…10,000 frontline police jobs protected in the next three years.

Migrants from the EU will not be able to claim benefits until they have lived here for two years. At the moment migrants have to wait three months and then pass a residence test (asking about their situation, skills, and duration of stay) before they can claim benefits for up to 6 months. After 6 months you then have to prove you’re likely to get work to continue receiving money.

Make it illegal to undercut wages by exploiting migrant workers.

Everyone who works for public services will need to speak English.

 

Labour manifesto.003

 

Go equality: large companies will have to publish their gender pay gap situations.

Stay in the EU but with reform so it works for Britain. What would that reform be?…Let us know if you find out.

 

SHAKE UP THE POLITICAL SYSTEM

Out with the old… Get rid of the House of Lords and replace with a more democratic system: Senate of Nations and Regions where you must be ELECTED in. Want to know how the current system works?

Move power and control from Westminster… create an English Devolution Act, handing £30 billion of resources and powers to cities and county regions across the country.

No more cheeky jobs on the side …. ban MPs from holding paid directorships and consultancies.

Ministerial pay will be cut and frozen until the books are balanced. Ever wondered what the Prime Minister earns? Check out page 3 of this House of Commons Fact Sheet

 

SURE THIS ALL SOUNDS GREAT BUT WHERE WILL THEY FIND THE MONEY?

Restrict tax relief on pension contributions for the highest earners: if you’re a rich pensioner the amount of money you can put into your pension fund without being taxed will be lowered equalling more money going to the government in tax.

A bank bonus tax or an extra tax on bankers’ bonuses.

Introduce a British Investment Bank to help UK businesses grow.

Abolish non-dom status so all those who make the UK their home will pay tax in the same way as all of us. Don’t know what a non-dom/ dom-nom/ noddy dommy is? You’re not alone, find out here.

Live in a property worth over £2million? Lucky you… Labour will introduce a mansion tax on properties worth over £2million.

Introduce a levy (tax) on tobacco firms.

All you Jimmy Carrs and Gary Barlows… watch out! Labour will be tackling and clamping down on tax avoidance.

 

MANIFESTO DECODED:  Labour wants you to think they have competent, realistic plans for sorting out the British economy. Labour’s big problem in the past has been that the public think they can’t be trusted with the dolla. Attacking this issue head on is a bold tactic.

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[myo_fb_poll poll = 1267] 

 

What else do you feel Labour aren’t quite covering? Let us know in the comment box below.