You’d be forgiven for thinking, as we saunter towards the Chancellor’s Budget, that the UK economy is a hub of economic prudence: Treasury minions sing of gold, and you’d imagine the spectre of debt had been banished.
The truth is, the Treasury’s coffers are in a terrible state. And the Austerity Programme, which was supposed to get a grip on the country’s finances, has been laughably incomplete. Unless we acknowledge those facts, we are in for trouble.
I am not an economist (on occasions, this is arguably a good thing). I tend to view these things through the prism of history, and the spyglass of past effect. Within such frames, an updated version of my book, A Fate Worse Than Debt, tracks the history of the British national debt from Boadicea to Jeremy Corbyn.
The history of the UK is interwoven with debt. Boadicea’s revolt was triggered by clueless borrowers and ruthless Roman debt collectors. In the Dark Ages, English pennies paid off the Danes; our Middle Age minstrels birthed the Hollywood folklore of Robin Hood, with King Richard’s diverted ransom levied by a chain-mail-clad Inland Revenue.
Deficit spending led England to win, then lose, the Hundred Years War; and to win, then lose, an Empire in North America. By good fortune, and not much more, it also clawed us through the Napoleonic trial and two World Wars. Understanding these keystone events helps us to grapple with the risks and consequences of bare treasuries; but understanding the decision making behind the 20th century ballooning of central planning helps us to grasp modern statist pitfalls.
And so to the imminent Treasury announcements. The Evening Standard’s editorial will be a tricky one for the former chancellor to write. Having pledged a blood and guts offensive to address the deficit (note: not the legacy debt) and after much repeating of the need for belt-tightening, nothing was done. Cynics suggest this was deliberate, done in the expectation that there would be a Labour chancellor after the 2015 vote whose pants would fall down.
The UK national debt, according to ONS figures, as at the end of the last financial year, stood at £1,720 billion – or £1,720,000,000,000. The deficit (to those Labour MPs who still confuse deficit and debt, that means the shortfall in Government spending over what was coming in) was £45.5 billion.
Good news spinners could point to the debt plateauing as a share of the UK’s total GDP, though it has still been going up in real terms. But that figure notably excludes remaining liabilities from the banking crisis, since as the ONS puts it, “the reported position of debt (and to a lesser extent borrowing) would be distorted by the inclusion of RBS’s balance sheet (and transactions)”. It also excludes a raft of wider off-the-balance sheet liabilities, particularly state pensions, that are otherwise soldered into future decades of public accounts. So even blind optimists should be given pause for thought.
There is a tendency amongst the Deficit Lobby to say that all is fine, given the national debt is still running at around 90 per cent of GDP. This is to airbrush two key points. In the first instance, even the EU, when it was trying to jimmy member states into the euro, identified 60 per cent as a sensible top limit for the debt-to-GDP ratio.
Secondly, the true measure of impact should not be through reflecting on national turnover and GDP, but governmental turnover, since it is the state’s coffers the deficit is set against, and whose budgets are bitten into by enduring debt repayments. The debt ratio in those terms will be more like 230 per cent. The deficit itself has been running at 7 per cent of the Chancellor’s budget.
In our book we like to number crunch, and help readers to visualise the horizon-filling scale of the digits we encounter. Let’s do so here with some fantasy shopping.
The UK’s national debt is heading up to £1.9 trillion. What might that amount of money buy?
Train buffs might reflect on the costs of HS2. There remains considerable dispute on what the final bill will be for this, but one reasoned estimate currently puts the price tag at £48 billion just for Phase 1. With of length of some 140 miles, that makes for an eyewatering £342 million a mile. But at those rates, £1.9 trillion would lay track from London to Beijing. That would make quite some latterday silk road.
There is also a lot of talk right now about the Green Belt and London house prices. In 2005, reports suggested that the Savoy Hotel had been bought for a quarter of a billion pounds. If we extrapolate the number of rooms against the unit cost, factor in life expectancy and the like, we might outrageously suggest that 23,500 people could be housed for their entire lives, cradle to the grave, in swanky hotels. That’s top end Monopoly Board living for everyone in Felixstowe.
Or let’s play at being Auric Goldfinger. At the time of writing, the gold price is about £31 million a tonne. Setting aside again the obvious and inevitable discrepancies that arise with such flights of fancy relating to market disruption and so on, £1.9 trillion would get you over 61,000 tonnes of gold – variously estimated at between 1/3rd and 2/5ths of all the gold ever mined. What could you do with it? To quote Goldmember, Shmelt it! Factor in relative metal densities, play short cuts with gravity and architecture, and you could rival Easter Island with glittering colossoi.
Our imminent level of national debt would be able to buy us 68 Statues of Liberty, made out of gold. We could line them up on the White Cliffs of Dover to greet travellers, and maybe even stick some turbines on them to keep the Green lobby happy.
You might think these are absurd ideas played with ballpark sums. But looking at what that modern deficit has actually bought, it’s no more ridiculous than the land of inflatable unicorns and stagflation where Labour’s addiction to deficit spending would inevitably lead.