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Business Analysis & Features

The experts' view: Twenty questions you were afraid to ask

Pundits speculate whether Britain is on the verge of bankruptcy. A currency dealer says sterling is "finished". David Cameron says Britain could soon "run out of money"... So just how bad are things? We asked a panel of our writers – business editor Margareta Pagano, personal finance editor Julian Knight, political commentator John Rentoul, and assistant editor David Randall – 20 key questions about the economy

Are we heading for bankruptcy?

Britain's debt is at record levels, sterling is falling like a stone, and investors are pushing up bond yields – a sure sign they want proper compensation for lending to the Government. But the bailiffs are only a distant prospect.

If we actually go bust, what would this mean?

A visit to the International Monetary Fund, national bailout, ignomy, Brown exiting Downing Street, and some severe public spending cuts...

How big is the national debt?

Officially, around £650bn. This doesn't include liabilities taken on by the nationalisation of Bradford & Bingley and Royal Bank of Scotland, nor more than £30bn of Private Finance Initiative projects that government accounting trickery has kept off the books. National debt could be as high as £850bn.

How deep is the recession?

The UK economy contracted by 1.5 per cent in the final three months of 2008. Output has not fallen so badly for more than 28 years.

Do we know the full extent of banks' toxic debt liabilities?

Absolutely not. Lending between banks seized up in 2007 because none of them trusted each other. This fear remains. Absurdly complex product and accounting structures mean bank bosses are most likely in the dark even about their own operations.

Is public spending really out of control?

Not yet. Gordon Brown has said: "We have low public debt, we have low inflation, wages are under control." Few economists agree. Research firm Capital Economics says: "Borrowing is going to rocket. Things are already pretty bad and there's worse to come."

How big a brake on recovery are high levels of personal debt?

Britons are the most indebted in the world. Between us, we owe around £1.4 trillion. Having to service all this debt has dragged down consumer spending. However, Bank of England rate cuts should aid recovery in the long term.

Will property prices stabilise this year?

Capital Economics says prices will not stabilise until early 2010.

The pound – is it all over?

Unlikely. Goldman Sachs last week told its clients to stick with sterling, which it expects to bounce back quite soon.

Can we afford present levels of public spending?

The real question is can we afford not to spend on big infrastructure projects?

Where in Britain is worst hit?

July-September 2008 jobless figures show unemployment in London at 7.4 per cent, second only to the North-east, at 8 per cent. Yorkshire & Humber, the North-west, Wales and West Midlands all come in around the 6.5-6.8 per cent range. Northern Ireland is lowest, with 4.1 per cent.

Does short-time working help?

It's a lot better than lost jobs because it means there are more people still in work – not taking benefits – and still paying taxes.

Where are the first genuine green shoots of recovery liable to appear?

Earlier this month, media giant Reed Elsevier raised $1.5bn in bonds to repay some debts. In pre-credit crunch times such a success was common, but it is unheard of now. This deal, and rumours of corporate takeovers, suggest the beginnings of resuscitation may appear in the City quite soon.

Do Brown and Darling know what they're doing?

Possibly. They err on the side of avoiding the worst. If throwing money at the problem averts a slump, it'll have been worth it. If it doesn't, we'll just have to get used to Swedish levels of tax for a decade or so.

Is the VAT cut likely to be repealed in the Budget?

Not a chance. The trickier question for Darling is whether to prolong it beyond 31 December, when critics say putting VAT back up will trample any green shoots.

Is the Government so associated with the problem that it cannot solve it?

If recession becomes slump, then Brown's departure will be a precondition of the return of confidence.

What should a young, non-property-owning person do?

Cut down on credit card debts, overdrafts or personal loans.

What should a property-owning, middle-aged person do?

Weigh the financial implications of unemployment. Look at building up at least six months' income in a savings account. Don't cut back on pension payments.

What should a retired person do?

Shop around for the best savings rate, but don't deposit more than £50,000 with any one bank.

Finally, should I emigrate, and, if so, to which country?

The Independent's Simon Calder recommends New Zealand or Dubai.