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n the early 1920, swindler Charles
Ponzi devised a simple ‘get rich quick
scheme’. He promised investors in his
‘fund’ that they would achieve a 50%
return within 45 days of investing and
a 100% return within 90 days. I
suppose during the 20’s Wall Street
was motoring, with stocks rapidly
growing in value with no sign of
abatement, until the ‘29 crash. Ponzi’s
Back to the £930 billion figure
which is shocking in itself. Is that the
whole picture…sadly it is not?! Using
the analogy of an iceberg and the US
economy from Dr David Jeremiah’s
excellent ‘’The Coming Economic
Armageddon’’, it’s only the ‘visible’
debt that we can see. All Titanic
anoraks like myself, will know that the
larger part of an iceberg is below the
water line, and is analogous to the
‘invisible debt’ of HM Government. The
scam worked by giving the promised
total potential liability of the UK may be
return to early investors, by conning
a shocking £5.5 trillion (visible &
more funds from successive investors.
invisible debt) – several fold our GDP
For a while it worked very well…and
and national income. You get to this
the ‘Ponzi scheme’ was born. Eventually figure by adding together the visible
it imploded and Ponzi was charged
national debt, together with the
with 80 counts of fraud and sentenced invisible national debt – the much
to (a very light by today’s standards)
larger element of unfunded liabilities
3½ years in gaol. On release he was
and commitments made by HM
deported and died penniless in 1949 in Government on our behalf.
Rio de Janeiro.
The Ponzi Scheme analogy has
Roll forward the clock to the
come from the question- why are so
2000’s, Ponzi’s record was shattered by much of these HM Government
the greatest Ponzi swindler of all time
commitments to us unfunded? What
Bernard Madoff. Bernie made off (sorry has happened to all our taxes and
I couldn’t resist that) with $ 65 billion
National Insurance contributions? The
of his investors funds using the same
truth is that our NI contributions have
simple but effective Ponzi scheme.
been nothing more than we-the publicBernie was a little subtler than Charles
granting HM Government an interest
Ponzi offering 12-20% returns. In doing free overdraft to fund current
so not only did he wipe out the life
commitments (rather like the way Ponzi
savings of thousands of cautious
and Madoff favoured early investors at
pensioners, but also caught some
the expense of later investors and so
notables such as CNN’s Larry King,
on). There are we, all thinking that our
actors Kevin Bacon,Jane Fonda, Zsa
NI contributions are ring-fenced in
Gabor and a number of national
some sort of trust fund to cover us in ill
charities; a horrendous breach of faith. health, unemployment and old age.
Bernie Madoff was charged with 7
Not so.
counts of fraud and in June 2009 was
Our taxes have just been spent as
sentenced to 150 years prison. He
the Government of the day so chooses.
made Wall Street insider traders like
Today’s 28 million or so employed are
Ivan Boesky and Michael Milken look
funding those already retired as well as
like rank amateurs!
social welfare programmes. Those of us
This is all very interesting but how is reading this will be unsurprised to find
it relevant? It in some ways relates to
that our children or even grandchildren
my prior article in issue # 44 where we will be funding us. It’s like the squirrel
discussed the UK National Debt and the not only not starting to save nuts for
mess our national finances are in. What winter as the autumn draws near, but is
I will try to demonstrate is that we have also eating the one’s left over from last
all fallen victim to a massive Ponzi
winter.
scheme administered by successive HM
How has this all come about?
Governments.
One of the biggest present and
To recap in round numbers our
future causes of financial instability in
National Debt is £ 930 billion; around
the UK will be the cost and liabilities of
60% of the UK’s GDP, and is expected
our own Welfare State system. With £
to peak at some 70% of GDP. Put
4.5 trillion of commitments it is not
simply Gross Domestic Product is the
hard to see how and why-yet we
value of all goods and services
produced in a country in any given year, blithely carry on as before. The
Government’s current difficulties of
equating to total consumer (usually c
reform of NHS purchasing budgets, are
60-70%), government and investment
a case in point. The proposals do not
spend, plus the value of exports, and
minus the value of imports. When GDP really address the forthcoming funding
falls for two successive quarters we are cataclysm, as the Coalition Government
continues to dance round the
said to be ‘’in recession’’. Recently the
handbags. Those opposed to NHS
economic slowdown has reared its
purchasing reform choose to ignore the
head again; GDP growth has been
revised to sub 1% for this financial year facts, and their counter proposals are
and few would be surprised if the third merely re-arranging the deck chairs on
quarter 2011 is in fact negative for the the Titanic.
The origins of the welfare state date
UK. Strong growth (2-4 % p.a.) is
back to the first half of the last century
needed if we are ever to start paying
from the 1906 Liberal Government. A
down our known national debt.
I
Where’s all our money gone?
42
Healthcare Business April 2010
means tested old age pension was
introduced-eligible for over 70’s- when
male life expectancy was 49 years!
Unemployment ‘insurance’ was
introduced in 1911, and pensions
extended to widows and orphans in
1925 (substantially increasing invisible
liabilities). Beveridge really got going
with reform in the 1940’s-Family
Allowance (1945), National Insurance
Act (1946), and National Health Act
(1948). All very magnanimous gestures
made on our behalf, but no-one did
the maths.
On the whole these reformers were
well meaning and radical for their
times. Memories of huge inequalities
and poverty in Victorian and Edwardian
England were not too distant. It-the
promise of a welfare state- also won
Labour a landslide at the 1945 election,
after the War.
The reforming politicians were also
myopic; too quick to assuage their own
guilt (most of the cabinet were
Oxbridge types) of the plight of the
working man (or woman), they set in
train a monster that may cripple the
working man (or women) in the future.
That is what is starting to happen right
now. They were also innumerate, and
ignorant to drivers of macro economics,
demographic trends and medical
advancements. Had they not been so,
surely they would have secured a ring
fence in law to our money-taxes and
NIC’s. Moreover, the post 1945
gestures on the welfare state were
made by a bankrupt country (National
Debt was 250% of GDP) following
WWII, and a mentality as if we still had
a great Empire…we didn’t.
As early as the 1960’s, it emerged
that provision for state pensions
(individual pensions not cosy state
sector employee indexed linked which is
another huge invisible cost) and
unemployment were inadequate. Many
pensioners struggled to make ends
meet, and no-one has ever described
unemployment benefit as a hugely
generous payment-the cracks were
appearing in the national Ponzi
scheme-solution; just throw more
borrowed cash at it. The NHS only
works by throwing huge unaccountable
sums at it. All this sounds very familiar
and is still going on today. The only
difference is that the numbers are
bigger.
Added to this has been the
systematic abuse of our generous (nonunemployment related) benefits;
immobility benefits have gone up
tenfold in the last 15 years. Additionally
a significant sign up of PPP/PFI
commitments has added some £250
billion to our invisible debt mountain. It
is now realised that the maths no
longer works for state sector indexed
linked final salary pension schemeswhich are now closing to new
employees.
The biggest threat to the UK’s
future financial stability is not Greece,
money.
The likely outcomes that may
happen could be many, and most
are painful:G A significant decline in the UK as an
economic and world power. This has
commenced as we see significant
reductions in our armed forces’
capabilities and foreign policy
influence. We are told it is no longer
affordable.
G A real risk of the UK Government
defaulting on some obligations due
to an inability to pay. There will be
no room for further borrowing on
the never.
G A significant rationalisation of the
NHS in terms of costs and
What is the likely outcome over
procurement. This is an organisation
the next quarter of a century?
of 1.7 million staff; that unbelievably
Firstly, let’s riskily assume that HM
employs only fewer people than the
Government can just about meet
Chinese Red Army, Wal-Mart and the
most current commitments on the
Indian Railways.
£650 billion of all types of taxes raised G Not all of the NHS may be free at the
each year, without further borrowing.
point of delivery. Already we have
That will involve the important
seen post-code lottery of access to
deliverables of (some) policing, law
medicines. On-demand IVF and
and order, criminal justice, (some)
many cosmetic procedures have
defence, (most of) foreign policy, the
been withdrawn. NHS dentists are
NHS, (most of) education, transport.
very hard to find. With nearly 2
The likely outcomes attaching to
million p.a. ‘no-shows’ for GP
our iceberg rely upon a very large
appointments, it is not hard to
crystal ball. Even were our economy
envisage consultation charges of c
and the world economy were to turn
£20 per visit becoming the norm (as
around and we as the UK start to see
has been the case for many years in
sustained GDP growth of 2-4 % p.a.,
other EU countries such as France
there is little hope that £4.5 trillion
and Ireland).
can be ever paid down. However, one
G Significant increases in the
thing is sure-as the powerhouses of
retirement age to receive state
the world economy changes in
funded pensions. Again this is
already happening with the
So just how big is this Ponzi-scheme iceberg?
threshold due to rise to 67 in 2036
and 68 in 2046. On the BBC’s
Andrew Marr Show (9/11), Pensions
Secretary Iain Duncan Smith
National Debt
questioned whether the threshold is
(visible part) £930bn
rising quickly enough (his own House
National Debt
of Commons pension is protected
(invisible part) £4.56 trillion
and generous!)
£1.20 trillion state sector employees
G The next generations may well have
pension liability
to avail of top-up commercial
£1.35 trillion state public pensions
insurance savings plans right from
liability
the time of leaving school or college.
£1.33 trillion state financial intervention
This will cover unemployment,
(RBS, Lloyds)
sickness, pensions and elderly care.
£122 billion PSBR deficit 2011/2012
The cost will become a significant
£260 billion PFI/PPP liabilities (full term)
barrier to home ownership (already
£300 billion Elderly care (unfunded
the age of many first home owners
projection - 20yrs)
are in their mid-30’s); UK house
Total =£4.56 trillion
prices will collapse to affordable
levels.
Unemployment benefit will be
capped for 1 year…as is already the
case in the U.S.A. which is facing a
similar issue:- U.S. visible debt of +$14
Sources: Office for National Statistics; Office for Budget Responsibility; CIPFAtrillion but also unfunded invisible
Public Finances.
liabilities of $120 trillion. Housing
benefit may well disappear, but rents
The figures speak for themselves
polarity from the West to East, we
should fall as house prices crash.
and are staggering in proportion, and better learn to cut the cloth
G UK housing benefit may well
represent c £180,000 for every
accordingly. Moreover politicians
disappear, but rents should fall as
household in the UK. In previous
should be sent on maths lessons to
house prices crash.
generations we used to talk in terms
fully appreciate the big differences
of hundreds of millions and then in
between 1 million, 1 billion and 1
G The reduction of availability of State
billions. The reality facing the current trillion, in the management of our
education as totally free at the point
Iran, weapons of mass destruction, Al
Qaeda, but our own national Ponzi
scheme-the Welfare State, and the
growth of ‘big government’, much
maligned (for different reasons) by our
Prime Minister. The situation would be
all very fine if we were like Norway…a
small population with buckets of cash.
The UK has to provide for 62 million
crammed into our small island, and
from a deeply impaired financial condition. In the prior confidence that the
State would provide for us on retirement, we as a nation have made little
of our own pension savings (despite it
being the most attractive investment
we can make due to tax relief). The
average UK private pension pot is £
9,100 for woman and £52,000 for a
man. On current annuity rates the latter
higher figure, would provide an annual
pension of £ 4,500. Try living on that.
It is very clear our own children and
grand children will pay for the deficits
through crippling Norwegian level
taxes, but not the public services that
normally go with such a fiscal model.
As the former governor of Colorado,
Richard Lamm commented on the
nature of government deficits:
‘‘Christmas is a time when kids tell
Santa what they want and the adults
pay for it. Deficits are when adults tell
the government what they want and
their kids pay for it’’. The next
generation will pay for future
generations’ pensions and social
security. How long will it be before this
system collapses under its gargantuan
weight?
and future generations is now talking
in terms of trillions-previously only the
domain of mathematicians and
scientists.
To get your mind around this
(most of our pocket calculators will
not have enough digit spaces), a
trillion is a million million or a
thousand billion – 12 zeroes are
needed. A good analogy was made in
World Magazine; ‘….think of it in
seconds. Going back in time a 1
million seconds would take you back
12 days. One billion seconds would
take you back 30 years and one
trillion seconds would take you back
32,000 years.
of delivery. So far the milk and the
school meals have been snatched
away. Text book/ fee contributions
are a matter of time. Look what has
happened to the tertiary education
sector over the last 2 years, and from
2012 the cost of University
education.
G A significant increase in the UK
agricultural sector both in terms of
productivity and employment. This
will partly be out of necessity as we
are unable to sustain the significant
trade deficits associated with
imported food. Non-seasonal
imported foods will become the
exception rather than the norm.
G A renaissance of the coal mining
industry (we still have significant
reserves) with the emergence of
carbon capture power stations. To
create energy security-and the fact
we will be unable to afford world
energy prices-the balance of our
energy will be nuclear.
G Vehicles may be powered by carbon
capture coal hybrids…obviating the
need to import some 1.7 million
barrels of oil a year.
G Inward immigration could become
negligible as the UK may be unable
to offer the opportunities and
perform the commensurate public
services that attract people from
overseas. Outward immigration,
particularly of the young and skilled
to Canada, Australia and New
Zealand may be significant.
As this is a look forward only a few,
some or all of it may happen. Things
change and new events change the
direction of the world on a regular
basis. This would seem to be somewhat
sobering Orwellian view of our
economic standing. However, prior to
reading this article did you know the
severe extent the UK and its
Government is indebted, visibly and
invisibly? Do we really think as a nation
we can carry on throwing tax payers’
and borrowed money around like
confetti? Is it not worrying that trillions
are the new numerical denominator
and not billions.
Try not to lose any sleep over this as
little can be done by any of us in a
hurry. As Charles Dickens’ Mr Micawber
said (ironically whilst in a Victorian
debtors prison) ‘’ Something will turn
up’’, which I guess is what Bernie
Madoff is probably thinking right now.
Matthew Gash
Director GGW Corporate
Services Limited
www.ggwcsl.com
The Office for National Statistics only
published the UK’s full debts and
liabilities for the first time in July 2010.
As a result much of this is new to
many readers and is a real hot potato.
Many think our funding time bomb it’s
‘just’ a few hundred billions, but it’s
much worse than that. It threatens the
Healthcare Business April 2010
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