Eliminating the Deficit
May 2nd, 2010
Question from James May
Can you publish the detailed estimates of the way to eliminate the £170 Billion deficit according to UKIP’s policies?
Prof says . . .
How has this deficit come about?
In 2009/10 the government estimates it will receive from taxes £490 billions.
It estimates it will have spent around £660 billions (of which £330 billion on wage and agency costs).
Therefore the Deficit 2009/10 is £170 billions.
National Debt
At 30 April 2009 this was around £600 billions.
For 2009/10 add £170 billions
Therefore the Estimate of National Debt at 30 April 2010 is £770 billions
Starting point for deficit elimination
1 Public sector wage costs (i.e. wages themselves, employers’ pension contributions, employers’ national insurance) are around £330 billion.
2 Public sector wages are around 5% higher than the private sector on average.
3 Public sector employer pension contributions are typically 14-18% of salaries. Private sector employer pension contributions are typically 4-6% of salary, say an average of 5%.
4 Number of employees in the public sector:
in 2001 7 million
in 2007 8 million.
5 Unemployment in April 2010 2.5 million
Unemployment in April 2007 1.6 million
Over 3 years the increase is around 900,000 (entirely in the private sector where employment among British workers has fallen over 10 years by 200,000).
Many private sector workers have opted for wage cuts and/or 4 or even 3 day working weeks to keep their jobs and firms going.
UKIP’s View
6 The public sector is just too heavy a burden for the private sector to bear.
7 This burden must be reduced in the interest of both economic necessity and equity between the public and private sectors. Nothing else will match the scale of the problem.
8 UKIP therefore proposes no tax rises but expenditure reductions by the public sector (which is paid for by taxes on the private sector and on individuals as taxpayers):
Annual Expenditure Reductions by 2015
(These do not affect services delivered to the public, but merely restore productivity to where it was in 2007.) Figures are constant £s per year.
(i) Reduce top public sector salaries by 2% per annum for 5 years and medium salaries by 1% p.a. for 5 years. Low salaries will not be reduced. This will save £16 billion per annum by 2015.
(ii) Reduce public sector employers’ annual contributions to employees’ pensions to the average in the private sector over 5 years. This will save £33 billion. No changes will be made to pensions already being paid.
(iii) Reduce public sector employee numbers to 2001 levels by natural wastage (2.5% per annum). This will save £33 billion.
(iv) Capital cost savings of 2% give £6 billion per year by 2015.
Total annual labour & capital cost savings by 2015 £88 bn
(iv) Benefits to be paid only to UK citizens over 21 and residents who have paid rates and taxes for 5 years. This will save £5 bn.
(v) Consolidate housing and other benefits into a single cash benefit, saving £10 bn p.a. No pensioners’ benefits to change.
(vi) Stop the UK’s annual subscription to the EU. This will save £10 billion a year by 2015.
(vii) Abolish most Quangos and all Regional Assemblies, reduce admin overheads due to simpler tax and benefits system (£5 bn).
Total repeat annual savings by 2015 will be £118 billion.
(viii) One off savings: ID cards £10 billion, NHS database £5 billion.
Total annual savings by 2015 £118 billion (A)
Plus one-off savings 2010-12 £15 billion
B Increasing Income by 2015
(i) UKIP’s Manufacturing expansion programme (see Jobs & Economy leaflet) will add around £80 billion of output on which taxes paid will give £27 billion. The increased private sector (about half a million) will absorb employees released from the public sector of around the same number.
(ii) There will be some general expansion in the economy of about 10% over 5 years (some generated indirectly by (i) above) giving around £140 billion on which taxes paid will give £49 billion
Increased real terms income p.a. to government £76 bn (B)
(C) Cost of UKIP’s long-term programmes p.a. £20 bn
(These are defence equipment, energy, flood and coastal protection, transport, manufacturing expansion.)
Net reduction in annual deficit by 2015: A+B-C = £174 bn
Surplus by 2015 is £174 bn less £170 bn = £4 billion
Estimated Total National Debt by 2015
At April 2010 it is £770 billions
Increase 2010 to 2015 is £420 billions
Therefore total National Debt by 2015 is £1190 billion
(This is much lower than any of LibLabCon’s projections (£1,400-1,600 bn) just for halving the deficit!)