John Hemming's Web Log John's Reference Website
Monday, October 25, 2010
  You couldn't make it up
Here on 22nd October it says:

The Work Foundation, which bills itself as "the leading independent authority on work and its future", announced today that it had been acquired by Lancaster University. The move came after a winding up petition, citing a £26.9m pension deficit, was filed at the high court yesterday.

The university claims the purchase minimises losses to creditors, including pension fund members, and safeguards 43 jobs, including that of the foundation's executive vice-chair, Will Hutton. Hutton is a former editor of the Observer, a member of the Scott Trust, which owns the Guardian, and an adviser to the government on public sector pay.


Two days later also in the Guardian here Will Hutton says:

The gamble did not have to be taken. The scale of spending cuts were not "unavoidable". The country was not and is not on the brink of bankruptcy. The stock of national debt built up over the decades lies in the middle of the international average as a share of GDP. Indeed, the national debt has been proportionally higher for 200 of the last 250 years. Britain certainly needed to get the flow of new public debt under control, but it had choices over the timing and how it split the adjustment between tax increases and spending cuts.


Solvency is not about the amount of debt, but the rate at which debt is either increasing or reducing. It is about the ability to pay debt back. Although the total amount of debt at any one time is obviously relevant - what is more relevant is the rate of increase of debt.

The danger missed by people such as Will Hutton is that as deficits are maintained not only the amount of interest goes up because the debt goes up, but also the interest rate on the debt increases making the amount of interest increase even further that then increases the forecast deficit exacerbating the problem.
 
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