Quantitative Easing

I made the mistake of listening to Radio 4's Today programme this morning as I drove up the A9. Italy. Berlusconi. Eurozone. Debt. It turns out that we really are going to hell in a handcart. Then later in the morning I read in the Guardian that the Bank of England was waiting to see if its injection of £75bn into the economy last month was actually working.

I am intrigued by the way we deal with big numbers. £75bn. Is that a big number? I decided to compare £75bn with the amount of money the Government receives in income tax each year. Being a methodical sort of chap, I put some numbers into a spreadsheet.

Are you ready?

Average individual earnings in the UK last year were £26,000. Most people would pay about £4,000 in income tax if they earned that.

Now we have to multiply that £4,000 by the size of the working population. That's about 36m people.

You get £144bn as your answer when you do that. So that's a rough estimate of what the Government receives in income tax each year. In reality, it'll be more than that because wealthy people pay tax at higher rates. And we know that there is a small but significant number of seriously wealthy people in the UK. On the other hand, to counterbalance that I've assumed that everybody of working age is working, which they'r e not, because there's about 3m people unemployed. Also, seriously wealthy people tend to hire clever accountants to make sure they don't pay much income tax anyway. So maybe my figure of £144bn won't be so wide of the mark after all.

Anyway, the point is that the Bank of England basically just blew half of that... I'll repeat that. The Bank of England last month blew half of the UK Government's income tax receipts on quantitative easing. And the Bank of England doesn't know if this policy works or not. Wikipedia tells us that quantitative easing is an "unconventional policy", so that doesn't sound great.

Mind you, we do of course have to remember that this £75bn of money that was injected into the UK economy last month - it wasn't real money.

Like I said, we're going to hell in a handcart. And nobody knows why. Not even the Governor of the Bank of England.