How will the UK’s debt finally be dealt with?

Unless you have had your head buried in the sand for a year or two, you cannot fail to have noticed that – far from being overseen or tempered by the OBR – the present government has managed to overshoot even its most pessimistic projections for borrowing. That should hardly be a surprise when it has capitulated to various workers with enormous pay rises. The only problem is none of these groups actually produce anything or have agreed to changes in practice or productivity. Heaven forfend! Let’s keep everything the same so that nothing can get better – except our pay packets.

What it does mean is our National Debt (very unfashionable I know) is effectively 100% of GDP. Or it might be less. Or more. No one really knows.

If we are ever to grow as a nation again we need to divert resources from paying debt and pandering to special interest groups and use the cash for  relevant industries and create GROWTH.

 So the first step would be stop that debt burden increasing. That perforce means not adding to it and that can only be achieved in one of 5 ways.  Greg Mankiw noted in his July lecture The Fiscal Future, the rising debt needs to stop growing (Surprise!). It can end in only five ways: (1) tremendous economic growth; (2) government default; (3) massive money creation; (4) major spending cuts; or (5) significant tax rises. So the Government, laser-focused on growth (option 1), has only adopted policies to kill it. That is the price of failing to grow and spending more than government collects. That can only end in National Bankruptcy. Massive money creation (option 3) as we know, both from Economic theory and empirical evidence results in massive inflation which will eventually destroy the nation (remember Germany in the 1920s). So 2 out of 5 result in National destruction. That leaves huge spending cuts, which we as a nation (and this Government in particular) are incapable of delivering. That only leaves massive tax increases which will result in National decline and the IMF turning up eventually.

So I regret to tell you we are on the road to Hell and driving along it at breakneck speed.

As I have argued before, rather than ratcheting everything up because of inflation, why don’t we just stop? Don’t index anything. As a young man I remember much talk about cash limits. Why can’t we have them back again? Simply not increasing spending on anything would over a very short time solve the problems we have. As with all things, that in itself would create other problems as departments and institutions (and individuals) would have to choose what NOT to increase which would perforce lead to some areas receiving less and a gentle reduction in expenditure. Certainty would lead to more rational decisions and a balanced budget. The last one was 2000/2001 and the one before that 1988/89. So we have happily simply added to our debt every year apart from 2 in the last 36 years. Think if you did that as a private person. Mind you with credit cards and all the rest nowadays you probably can. 

And before you tell me “ Covid” and “2008” the whole point of the economic cycle is that Government spends during those type of events and then as growth re-establishes itself claws back what was spent. The greatest lie ever told was Gordon Brown’s “investment.” He didn’t invest in anything. He simply spent, but Politicians, always quick to jump on a bandwagon, recognised that the poor public would accept that “investment” was much better than “spending.” There seems to be a lack of mention of investment now which is hardly surprising because no one can see any result from all that “investment.” Even the sainted NHS, showered with ever increasing sums of “Investment” works if you are in a road crash, but not so much if you need a routine operation. And just on that, this year the NHS will consume some £204 billion. Of that some £4 billion is spent on compensation for mistakes – only around 2%. But not much consolation if you are in the 2%.

‍