Lessons in Budgeting for George Osborne
Today George Osborne once again compared the government to a household.
And we have £109bn of it. It’s like with a credit card. The longer you leave it, the worse it gets. You pay more interest. You pay interest on the interest. You pay interest on the interest on the interest. And we are already pay £120m of interest every single day.
Left Foot Forward has already outlined why this analogy is not only wrong but dangerous. But if George genuinely does believe that the government is like a household, he really should understand that the best way to deal with debt is to grow.
Because it was the subject of a House of Commons’ inquiry, we know a great deal about Mr Osborne’s mortgage and his own household finances.
In 2003, he took out a mortgage for £450,000 on his home in Chesire.
In 2005 he, quite rightly, extended that mortgage to £480,000 to “pay for necessary repairs”. The Chancellor clearly understands, in his personal life, that smetimes one should borrow in order to invest for he future, or to cover necessary expenses (such as, maybe, preventing a second great depression).
In 2005, when he took out the £470,000 mortgages (which it is worth noting is interest only, he’s not trying to pay back the capital just yet, of no), Mr Osborne’s salary (as an MP) was just £59,095.
His debt to income (GDP) ratio was a scary 812%, much more than the UK’s projected 80%.
This year, assuming no capital payments on that interest only mortgage, that ratio has fallen to 357%, still way higher than that of the UK government, but less than half it’s level of 5 years ago.
How was Mr Osborne acieved this phenomenal reduction in his debt to income ratio without paying down a penny of debt? By increasing his salary to £134,565, on becoming a cabinet member.
The lessons of Mr Osborne’s household then are as follows – sometimes it makes sense to borrow and the easiest way to deal with debt is to grow your income. Maybe he should apply these insights to his handling of the Treasury.