Wednesday, 22 April 2009

Darlings debt just cost children another £1,000

I suspect I am not alone in trying to grapple exactly what the mountain of government debt announced by Darling today means for my family.... but lets look at it this way.

The last estimate I heard was that each child born in Britain today has about £20,000 of government debt. Today's news will put that higher.

Darling also said that his forecasts show no return to government surplus until at least 2017/18... i.e. 8 years before we even start repaying it.

As the government announces higher borrowing forecasts, investors see the increased risks and demand that government pays higher and higher interest rates. Today the gilt market has fallen again so the cost of the interest has gone up again --- The yield on benchmark 10 year gilts has gone from 3.02% a month ago to 3.42% and rising when I just checked a few minutes ago.

0.4% may not seem high alone but annualized over 10 years on £20,000 means nearly £1,000 of extra interest per child. Add to that the debt per child is now higher and the actual time to repay the debt is probably longer. Whatever your assumption it doesn't make the extra £20 a year promised for child tax credits look generous.

Various commentators have also raised the question of whether the UK's AAA/Aaa credit rating could be threatened. We should pray not. Ireland has just lost its. That of course would push bond yields and the long term interest bill for each of us even higher.

With thanks to FT.com for the graph of 10 year gilt spreads.

1 comment:

Anonymous said...

Always assuming that the Chancellor's ridiculous financial projections are correct.Not.