Wednesday, 28 August 2013

Even Mr Micawber knew that

Anyone who runs a home knows the difference between income and expenditure (the deficit) and money that is owed (the debt). Earlier this year David Cameron must have made a trivial mistake, as it looked like he didn't know the difference, unless of course he doesn't look after the family budget and he doesn't know the difference. Well last Wednesday’s Independent told us that the national deficit has risen slightly according to the Office for National Statistics.

I don’t know if you are like me and can’t think in trillions (I haven’t bought a trillion of anything for ages) so it is much easier to relate deficit and debt to a single household. Let’s choose a household with two parents and two children, and for simplicity I am going to divide the national debt and the national deficit by the UK population of 63.7 million.

The ONS reported that the deficit in 2012/13 was £116.5 billion, which is on the way down but this means that the deficit is still equal to £1,829 for every man, woman and child.  For my 'family' this means there is a deficit, a yearly difference between income and expenditure of £7,315. As for the family’s debt, well the Government's debt is £1.39 trillion which means that their debt is nearly £22,000 each making a total of around £88,000.

So you have a debt of £88 000 and each year you need nearly another £7,500 just to break even. How easy is it to earn an extra £7,500 per year? I think one of the parents needs an extra job.

Now you can begin to think about how to deal with the national debt and national deficit. This family must not spend on anything that does not relate to savings unless it relates to a possible increase in income. If it means a better paid job then it may be alright to buy a car but this family have to make significant cuts. It is not time to think about increasing expenditure unless it directly relates to an increased income. Even Mr Micawber knew that.

This family may even find lots of social activity which may not be as expensive as their current lifestyle. They may take Jamie Oliver’s advice and stop buying ready meals and eat in a more healthy way. It may mean that the family gun is sold (Trident) and they now rely on the police for their safety (the UN).  What’s the point of a gun when you can’t use it anyway? The family may still be thinking about spending on education but it has to think seriously about whether their training will add to their prospects for better employment.

Money can and should still be spent by the nation but the family and the nation have to think twice before spending anything.

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