So why all the fuss? Tax revenues are still flowing in aren't they? So the 'deficits' will be covered & we'll all continue on our merry way. It is impossible for any govt dept -- spending tax revenues -- to go bankrupt & be taken over.

Posted by: Sudha Shenoy at January 7, 2006 11:06 AM

Sudha,
"It is impossible for any govt dept -- spending tax revenues -- to go bankrupt & be taken over."

I hope that you are being sarcastic here.

Posted by: John East at January 7, 2006 06:48 PM

The situation isn't so clear.

Gordon Brown submitted pre-budget estimates in December which were unconvincing. He also couldn't have known that Blair would give away half a billion pounds of the EU rebate. So the government will need to borrow to cover this, and do so rather quickly if wage bills are to be met.

And, of course, this cash-flow crisis is believed to affect for more areas than have currently been disclosed.

The PFI schemes have been compared to the special-purpose entities used by Enron to hide the scale of borrowing outside the balance sheet. Like the bankruptcy of Railtrack, this is going to either cause a major crisis (unlikely, as you suggest) or rapidly come back on-balance-sheet.

Posted by: Kieran at January 7, 2006 11:11 PM

1. A company which mal-performs opens itself to take-over by another company which can use the assets better. Thus the level/quality of output is kept higher _than otherwise_.

2. This is impossible in the case of a govt entity, which spends tax revenues. These revenues keep flowing in, & must be spent. So 'deficits' are simply on paper. In Soviet days, large numbers of 'enterprises' were kept afloat de facto, one way or the other, whenever -- on paper -- they were 'losing money.' The situation is no different in the Soviet part of the British economy.

3. It doesn't matter what sort of paper shuffling & re-labelling is done. The Soviet sector _will_ obtain resources from the rest of the economy. Ultimately, it can coerce people/companies.

Posted by: Sudha Shenoy at January 9, 2006 05:37 AM

And look what happened to the Soviet Union.

Posted by: pl at January 9, 2006 03:54 PM

SS: "It is impossible for any govt dept -- spending tax revenues -- to go bankrupt & be taken over."

...

SS: "The Soviet sector _will_ obtain resources from the rest of the economy. Ultimately, it can coerce people/companies."

Sudha, In your scenario, where the 'soviet' sector has exhausted the resources of the profuctive sector, what happens then?

Given that the state sector of the economy has been growing from about (fictional figure), say 2% in 1900 to about 48% in 2005, on current trends, say, in about 50 years there is unlikely to be sufficient private sector to support the state sector.

Posted by: APL at January 10, 2006 08:40 AM

..... the economy collapses ? Too few productive people supporting too many unproductive people.

The problem is that Governments can, by judicious fiddling, push this event into the distance so it is 'their' responsibility.

What happened in the Soviet State is they chucked them in the Gulag or starved them ; Stalin in his early years forced up grain export by simply requisitioning it and not caring if people died (mostly Ukrainians).

Eventually it has to collapse. The state's pocket is not bottomless. Investment and Enterprise will move abroad fed up with both the taxation and regulation regime.

The money will run out - it already is running out. Lots of the economy is on tick as it is (e.g. the PFIs) ; this is going to get significantly worse.

Posted by: Paul at January 10, 2006 09:49 AM

I heard yesterday from somebody who works there that my nearest hospital, in Essex, is £20 million over budget, resulting in redundancies, though "not nursing staff".

Posted by: pl at January 11, 2006 03:33 PM