FT: The cost of burgeoning national debt

Wookster

UK public debt to usher in austerity

Gordon Brown is set to bequeath taxpayers a public borrowing bill from this recession so large it will surpass the stock of national debt inherited by Labour when it came to power in 1997.

The alarming deterioration in the public finances will tie the hands of governments for the next decade, ushering in an era of severe austerity and tax hikes not seen for at least two decades.

Britain’s relatively strong standing in sovereign debt markets over recent years is also set to be compromised by the projected depth of the recession. The risk is that the UK will slip back to its 1970s and early 1980s pariah-status in government bond markets, leaving the next government struggling to fund huge levels of borrowing.

On Sunday night George Osborne, shadow chancellor, said the Financial Times analysis showed “how bad the situation is and how difficult the task facing the next government will be”. The Conservatives are highlighting the state of the public finances in order to clear the way for tax rises and spending cuts, should they become unavoidable. The shift in tone was underlined on Sunday by Ken Clarke, shadow business secretary. He said soaring debt levels meant the totemic pledge to cut inheritance tax was no longer “a high priority”.

The warnings over the state of the public finances were echoed by the CBI, which warned that a big fiscal push at next month’s budget would be unaffordable and imprudent.

A government bond auction last week saw the weakest demand for gilts in more than 10 years, partly because the bond’s maturity was outside the range being purchased by the Bank of England under its quantitative easing scheme.

The auction was a warning that the government might rely on the central bank’s unlimited pockets to fund its projected £147.9bn gilt sales over the coming year.

Even that record projection of gilt sales will have to be revised higher if the International Monetary Fund’s latest forecast is realised. It estimated that public borrowing will soar to 11 per cent of national income (£165bn) in 2010.

This financial year, the government is on course to borrow £95bn with just one month of data still to be published. The latest City forecasts and those from the IMF suggest borrowing of between £140bn and £170bn in the two following years.

Together the total increase in national debt over the three years between 2008-09 and 2010-11 is set to be far higher than the £356.4bn inherited by Labour in the spring of 1997.

Robert Chote, director of the Institute for Fiscal Studies, said: “Britain’s government borrowing in 2010 is projected to be by far the highest in the Group of 20 in spite of the fact that, alongside South Africa, we are the only two countries planning to withdraw fiscal stimulus – it does not give the Treasury a great deal of room for manoeuvre.”

As a share of national income, Labour inherited public sector debt of 42.9 per cent of gross domestic product. Debt fell in the first few years of prudence under Gordon Brown, but is now shooting higher with the new IMF borrowing projections suggesting a debt burden of more than 70 per cent of GDP in 2010 with further rapid increases thereafter.

With output slumping but public spending operating under cash increases until 2011, government spending is set to approach 50 per cent of national income, a figure that has not been seen since the secondary banking crisis and oil crisis of the mid 1970s.

http://www.ft.com/cms/s/0/bc7978f4-1729-11de-9a72-0000779fd2ac.html

Have you got your cheque book ready?

Generali

In some ways I wish Labour win the next election as it will destroy Socialism in the UK forever.

IMO of course.

Sir_Humphrey

Generali wrote: »

In some ways I wish Labour win the next election as it will destroy Socialism in the UK forever.

IMO of course.

Well, Labour has already destroyed laissez-faire, along with Bush, so who knows? To actually destroy socialism, they'd have to be socialist in the first place however.

BACKFRMTHEEDGE

Generali wrote: »

In some ways I wish Labour win the next election as it will destroy Socialism in the UK forever.

IMO of course.

I think the only thing that has been destroyed is a belief in unfettered capitalism. It's the advances in socialism that have put food on the table of households of families who find themselves without a job because of the excesses of capitalism.

Not sure your belief in capitalism has done you much good has it Generali?

Generali

Sir_Humphrey wrote: »

Well, Labour has already destroyed laissez-faire, along with Bush, so who knows? To actually destroy socialism, they'd have to be socialist in the first place however.

You think the UK Government isn't Socialist? They've increased Government spending and debt dramatically, increased tax take and redistributed income as a result.

Isn't that Socialism? That they use laissez-faire rhetoric doesn't make them Libertarian.

Whatever ideology the current UK Government is, perhaps we can agree that they've destroyed the economy for a Generation and perhaps beyond.

mustrum_ridcully

Generali wrote: »

In some ways I wish Labour win the next election as it will destroy Socialism in the UK forever.

IMO of course.

The Tories need to hope for that as well as trying to sort out the mess created by Brown could finish them and they probably won't be lucky enough to get another Falklands War.

The best thing for the Tories is to have a situation like in 1992 - where a very weak Labour goverment gets in and sets about destroying itself as it'll have to do some really nasty and unpopular tax hikes.

Wookster

Generali wrote: »

In some ways I wish Labour win the next election as it will destroy Socialism in the UK forever.

IMO of course.

The cost to human lives, employment etc would be enormous.

Sir_Humphrey

Generali wrote: »

You think the UK Government isn't Socialist? They've increased Government spending and debt dramatically, increased tax take and redistributed income as a result.

</p>
Nope. If that were socialism, the biggest socialist in UK history would be Winston Churchill.

Generali

Sir_Humphrey wrote: »

</p>
Nope. If that were socialism, the biggest socialist in UK history would be Winston Churchill.

I think Total War is an exceptional circumstance unless you're thinking of something different.

JonnyBravo

Generali wrote: »

Whatever ideology the current UK Government is, perhaps we can agree that they've destroyed the economy for a Generation and perhaps beyond.

Whilst I'm no lover of this Govt... indeed I can't stand Clown.... I think it's just as much the case of them standing by with their snouts in troughs as others destroyed the economy.

(Of course they had warnings from varying sources about what was happening but ignored them all as they knew better.... our only chance was perhaps if the opposition had been the people warning of our impending doom but they were too busy moaning about fox hunting and the like.)

Sir_Humphrey

Generali wrote: »

I think Total War is an exceptional circumstance unless you're thinking of something different.

That is my point. Spending can increase for many reasons. It is a means to an end, not an ideology in itself. That is why your definition of socialism was incorrect.