Tuesday, 27 October 2009

How to fund the bailouts, part two

Thanks to Tory MP Brooks Newmark, we can now view the spiralling public debt in a new and more frightening way: that is, rising at a rate of £700,000 every minute. Quite an image, regardless of your political bent. It doesn’t end there.

As the angriest of angry bloggers, Wat Tyler, so eloquently puts it: if you add the cost of future state pension payments, throw in the liabilities of our two largest semi-nationalised banks, consider the burden of decommissioning our old nuclear power stations, and remind ourselves of our PFI obligations, that hole in the public finances does actually start to look a bit scary:

If we wanted to be cautious—admittedly not something our present rulers have been much good at—we'd say our real national debt is now in the range £7-8 trillion. Or around £300 grand for every single household. Gulp.”

Gulp indeed. But for the time being, the size of the debt is irrelevant. We can only begin making cuts once the economy is back on its feet. If nothing else was learned from the horrors of 1929, the importance of managing the recovery slightly better than the decline is paramount. A third-quarter contraction of 0.4 per cent suggests we are not ready to commence tinkering.

Whatever Cameron says, we must stop thinking of the public budget in the same terms as an everyday household budget. Households balance the books by spending less when the pay cheques become lighter. Governments do precisely the opposite. £700,000 a minute is a scary image, but every time we sensationalise the DEBT CRISIS, there is a risk of undermining valuable spending projects that only months earlier seemed perfectly reasonable. All that hyperbole increases the pressure on the Chancellor to say no to everything.

One sector up for review
is the UK's space industry. For those of you surprised to learn that the UK even had a space industry, it is worth recognising that British success in this field over the last few years has been largely incidental—at least as far as the government is concerned. We spend about £200m of public money a year on space, a pitiful sum considering the sector’s huge contribution to our economy—70,000 jobs and more than £6bn in revenues. But space is precisely the kind of industry that needs continued financial support to go on producing a net benefit.

The Space Innovation Growth Team (IGT) is currently preparing a plan for the next 20 years of UK involvement in the sector. The report, due in December, will outline how to turn a potentially greater government subsidy into a competitive advantage. There is of course a very real chance that the report will be ignored completely. And here, in a nutshell, is the potential DEBT CRISIS fall-out: industries that contribute vital skills and revenues starved of the necessary investment capital by unnecessary meddling.

Europe’s space industry is only as competitive as ESA, one of the space industry’s largest client, allows it to be. It is no coincidence that French lobbying of ESA is much more effective than UK efforts. France’s government spends almost £2bn on space—ten times the UK’s contribution. That £2bn is very difficult to ignore. When those lucrative private sector contracts are handed out, it is the countries that have sufficiently greased ESA’s palm that triumph. It may not be particularly democratic, but these are the rules. Making poorly timed, schizophrenic spending cuts may remove us from the game entirely.

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