DEBT is a terrible experience. Grown men lie awake in the darkness at 3am, sweating over how they’re going to pay the mortgage, the council tax, the season ticket, those maxed-out credit cards and the utility bills, let alone new trainers for the boy and the school trip for the daughter. It drives an unknown number – mainly men – to suicide. Of the 6,188 recorded suicides in the UK last year, the rate for males is three times higher than females. Many were debt-related.
Dickens’s Mr Micawber said: "Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six: result? Happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six. Result? Misery."
Micawber’s simple rule applies at all levels. Nations are little different from individuals. The same iron rules apply to macro-economics as to micro-economics. Spending less than you earn will lead to financial happiness. Look at Norway. Spending more than you earn will lead to financial misery, which is likely to damage many other areas of national life. Just look at Venezuela. It really is that simple.
The worrying conclusion is that Britain – and her taxpayers - should now be very worried indeed; British national debt has reached unheard-of-in-peacetime proportions. For decades, successive British governments have secretly beggared their taxpayers to a total of £1.7 trillion. Britain’s ballooning national debt rose by £250 million a day last year -- or £26,000 [start itals] per person [end itals]. This is very bad news, because someone is going to have to pay that money back at some time, and, “as any fule no”, there’s no such thing as “government money”. Just yours, the taxpayer’s, hard-earned dosh.
The reason Britain’s national debt is growing is very simple, and partly rooted in democratic government. In modern democracies governments usually get elected by bribing the electorate with their own money. Perhaps the most egregious recent example of this was Jeremy Corbyn’s uncosted offer to give students free tuition at universities. It was a huge vote-winner; young people turned out in droves for Corbyn. Everyone loves a freebie, especially if someone else is going to pick up the bill. But for government debt there is no freebie: only the taxpayer can pay for Britain’s massive debts.
The National Debt began when King William III engaged City merchants to invest in the government for interest. That syndicate became the Bank of England, and funded a century of wars, peaking in 1815 at the end of the Napoleonic Wars at over 200 per cent of GDP. After that national debt fell back for a century as Britain prospered.
Britain’s current debt problems go back to the First World War. That cost £5 million a day (in old values); a fortune in modern money and paid for mainly in gold. WWI wiped out 75 years of Victorian savings. The Great Depression and WWII finished the job, and by 1946 Britain was totally bankrupt, saved only by the generosity of America’s Marshall Plan to rescue western Europe.
After the war the need to control government spending to get Britain back on its feet was obvious; but this clashed with demands for “homes fit for heroes” and the “New Jerusalem”, a welfare state from cradle to grave, with its ever-rising demands from the electorate for government-provided “free” services. Ever since, any case for tight control of public expenditure has been overwhelmed by citizens’ expectations of goodies from the government.
Back in the 1970s Dennis Healey tried to spend his way to prosperity, throwing taxpayers’ money around like a drunken sailor on shore leave. In Labour’s first year, government spending was increased by 31 per cent. The next year, 1975 to '76, spending increased by another 28 per cent, including huge increases in public sector pay. The effect on the public finances was disastrous. Inflation hit nearly 30 per cent. Budget surpluses of the 1960s disappeared to become a budget deficit, as government spending rose to 47 per cent of national income, a peacetime record. Whitehall has been running a budgetary deficit ever since and borrowing other people’s money to fund the difference.
Every successive government since has caved in to demands that it spend more on the people. Even George Osborne’s “Austerity” turns out to have been a lie; despite his claims to be cutting back, British national debt and borrowing actually increased on his watch.
Today’s government spending in excess of income is nothing less than borrowing money it hasn’t earned. Today’s British consumers are at the trough too, spending fortunes on credit thanks to cheap money. No-one saves any more: at 2 per cent (if you’re lucky) what’s the point of saving? Over the past 12 months families have binged on car finance, which has rocketed by around 15 per cent, and credit card borrowing by almost 10 per cent -- far higher than household earnings.
Bank of England Governor Carney is rightly warning that lenders are now becoming increasingly concerned about the risks from this rapid rise in UK’s burgeoning consumer credit. "There are pockets of risk that warrant particular vigilance. Consumer credit has increased rapidly. Lending conditions in the mortgage market are becoming easier."
Carney’s strictures apply equally to Whitehall. Just like its profligate citizens, the brutal fact is that the British government is also spending more than it is earning and having to borrow eye-watering sums just to keep going. This cannot last indefinitely, either for Mr Smith and his credit card(s) at number 29, or for the Treasury; and everyone knows it.
Things are getting worse. In 2005, the UK National Debt was about 38 per cent of Gross Domestic Product. But in the wake of the crash of 2008 the National Debt has now doubled to over 80 per cent of GDP. As a nation, we ought to be worried about this. Britain is living on borrowed time, in a fantasy world of unlimited borrowed money. It cannot last.
By the time you finish this [start itals] sentence [end itals] the national debt will have risen by £7,000. The interest alone costs over a billion pounds a week. That’s enough to pay for the social services and education budgets combined. The hard truth is that the case for controlling government spending has never been stronger. The real problem is that someone is going to have to pay this back; that means future generations. This is morally wrong. And to pretend that this debt is “austerity”, when it is in fact really government over-spending, is to kid ourselves.
And things are going to get worse. For example, last year that wonderful cash cow, North Sea oil, suddenly became a drain on national finances, costing taxpayers more than £300 million as lower oil prices cut oil and gas companies’ taxes. And Britain doesn’t exist in a vacuum. All over the world advanced economies are turning off the money taps. "In the big four countries we’re going from a situation of no net bond issuance to $1 trillion of bond supply next year. That is going to be a big adjustment,” said a senior central banker. Quantitative easing (ie printing loadsamoney) is ending. The world’s cheap money tree is drying up.
In the middle of all this, Britain's recent general election has revealed that the electorate, instead of trying to live within its means as a nation, is insisting that Britain should cast off “austerity” and spend, spend, spend. Meanwhile, government ministers, who ought to know better, are calling for increases in public spending, at a time when the government is already adding roughly £60 billion a year to the country’s indebtedness.
Politically and electorally cute? No. Economic madness, as we head for a national debt of £2 [start itals] trillion [end itals].
That really will take some paying off. Maybe it’s the Chancellor who should be lying awake at nights . . .
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