It's Official: Britain Is the Top "PIG"

February 20, 2010 (LPAC)—"Shock as British Deficit Equals That of Greece," headlines the London Independent. The collapse of tax revenue that caused a record £4.3 billion deficit for January, is front-page headline news all over the British media. Now, almost all the relevant numbers have made Great Britain the top PIG. First, the announcement pushed up the interest on British 10-year treasury bonds, or "gilts," to 4.2%, up 17 basis points. While this is still lower than Ireland (4.75), Greece (6.53), and Portugal (4.41), it is considerably higher than Spain's, which are 4.02%, and Italy's, which are at 4.05%. As for the deficit as percentage of Gross Domestic Product, Britain is headed toward 12.8%, as compared with Greece's 12.7%. Even if Britain is within the government's own official forecast, it will be at 12.6%. The overall borrowing this fiscal year, which ends in March, is officially forecast to be £178 billion, but could exceed £180 billion.

The government maintains that it cannot be compared to the PIGS, because its public debt is only 60% (£848.5 billion) of GDP. But even this is worrying, since it has increased by 10 percentage points this year alone, from 50% (£708 billion). But this is a phony figure, because last year the Office of National Statistics maintained that the government's bank bailout has to be included. This would bring the debt to £2 trillion, or 147% of GDP, which is 50% larger than Greece's. The ONS stated that since the government has put in billions to save the Bank of Scotland and Lloyds Banking Group to the point where it controls their management, they should be considered part of the public sector.

Meanwhile a closer look at the "fundamentals" of tax receipts, shows it could hardly be worse. The collapse of revenue was 9% in a month—January—for which economists had forecast a 2.8% increase. Income tax returns collapsed by 20%, and corporate tax by 6%. The Value Added Tax (VAT) increased only because the rate was increased from 15% to 17.5%. Public spending increased 15%, especially because of increased unemployment benefits. The Independent reports that the figures may have been massaged, because there are indications that the government has been holding back the reimbursements for overpaid income tax, which would make "the figures better now, at the cost of making them worse in a couple of months time." Because income tax is collapsing, especially in the top 10 percentile which accounts for 53% of the intake, the VAT will likely be increased to 20%.

Meanwhile the collapse of revenues among British municipalities is expected to lead to the loss of more than 20,000 municipal jobs.