Whatever happened to The Debt?

Remember The Debt? The Debt was a really Bad Thing ten years ago. The sheer hugeness of it was going to drag the country down, cripple the economy, turn us into a pariah on the international markets and bankrupt the country.

The Conservatives managed to weaponise The Debt so successfully that it was able to beat Labour in two elections. Despite the evidence being pretty flimsy, the Labour Party never managed to kill the story that it was to blame for The Debt. It also helped to cajole the Liberal Democrats into coalition. After all, it was a national emergency. Time to pull together. Stop all the party infighting or The Debt will get you.

Nobody talks about The Debt any more. Even the chancellor barely mentions it and the threat of a downgrade by Moody’s, which would have seen panic headlines ten years ago, hardly made the news. It hasn’t gone away though. In real terms it’s bigger than it has ever been and as a percentage of GDP it has only recently started to fall. It’s certainly a lot bigger than it was in 2010. Ten years ago a debt-to-GDP ratio of 60 percent was going to cripple us. Nowadays, it seems, 80 percent is nothing to worry about. Politicians in both the main parties are now so relaxed about it that they are happy to see it grow again.


Chart by Economics Help

The Resolution Foundation and the Institute for Fiscal Studies have both attempted to calculate what the main parties’ manifesto commitments would mean for the public finances. Both the Conservatives and Labour are promising to increase spending. The Resolution Foundation noted that the word ‘Invest’ appeared more often in both manifestos than ‘Brexit’, ‘NHS’ or ‘Environment’. The trouble is, neither party is keen on increasing taxes to pay for it.

As Chris Giles pointed out, while the Conservatives plans are a lot more modest in terms of spending than Labour’s, there is a big expensive promise in their manifesto:

3. The Tories have no costing for social care

The Conservative manifesto contains one expensive pledge on future financing of social care, by saying that “nobody needing care should be forced to sell their home to pay for it”. The party does not cost this pledge. Labour’s proposal of free personal care — help with daily living but not accommodation costs — was costed at £10.8bn a year, indicating that this is a large omission by the Tories. The Conservatives therefore have a large hole in their manifesto costings, which implies additional tax increases, more borrowing, or public spending cuts elsewhere.

Then there is Brexit. On Page 5 of the Tory manifesto, in bold, it says:

“We will not extend the implementation period beyond December 2020.”

Almost nobody with any experience or knowledge of trade deals believes that it would be possible to agree one with the EU in such a short time. Former trade negotiators have warned that the UK is likely to be in another Brexit crisis this time next year as the deadline looms and a trade deal still hasn’t been negotiated.

The Conservative commitment, then, is almost a guarantee that there will be a severely disruptive hit to the economy at the end of next year. Once you factor the lower economic growth into the manifesto costings, says the IFS, the public debt level under the Conservatives is likely to be even higher than under Labour.

Screen Shot 2019-12-02 at 16.57.30

A party that spent the best part of ten years banging on about The Debt is, apparently, now happy to see it rise. Everything, it seems, must be sacrificed on the alter of Brexit. The Debt is yesterday’s news.

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12 Responses to Whatever happened to The Debt?

  1. Dipper says:

    If you look at that chart, you can see the debt has stabilised as the deficit has been brought under control.

    Not an issue at this election?? When Corbyn and McDonnell start promising billions in all directions, it is a very big issue.

    • Daddy In The Kitchen says:

      Labour’s policies are reflational – in other words, GDP and tax receipts will increase, probably very quickly. The Tories don’t seem to have much of an industrial strategy beyond trying to destroy it by leaving our biggest trading partner, the EU.

      • Dipper says:

        Tax receipts will go up under Labour because they are transferring wealth from individuals to the government so private expenditure will go down taking many businesses with it. The Labour policy is akin to a child in a toy store; I’d like that, and I’d like that, and I’d like some of that too. They have no policy for generating wealth, no clue how it happens, just a recipe for economic disaster and social retribution.

    • jayarava says:

      First, read the article. Both sides are promising to spend a lot more money an the Tories have huge uncosted promised in their manifesto.

      This is an acknowledgement that the ideological austerity program has failed. It has not only failed to produce prosperity, it has exacerbated inequality by loading the burden of paying for the global financial crisis onto the poor and middle, while the kleptocrats continue to steal from us.

      Govt doesn’t control the deficit. Govt restricting their spending was always ideological not based on sound economic theory. And it simply restricted the post-recession growth to a bare minimum. And the resultant collapse of social services, the rise in violent crime, homelessness, and poverty are the result. As are chaos in the NHS, especially mental health, the chaos on our railways, the poor state of our roads, etc. Austerity simply meant that the govt stopped investing in the UK at a time when the private sector were not investing. And we started going backwards. And the inequality, the apparent collapse of social services and infrastructure pushed people to vote for Brexit because the government blame the faults created by their mad ideological program on “immigration” and EU regulations.

      And this is all so stupid, because we watched Japan go through all of this in the 1990s. We knew from the outset that restricting government spending during a balance sheet recession does not work. For reasons I will never understand, the Tories, led by a man with no qualifications in economics, simply threw away all out hard won knowledge of how state economies work and treated the UK economy like a cheque book. It was madness. It was criminal. And the electorate bought it hook line and sinker because they are ignorant. And they’re about to do it again because they don’t learn from their mistakes.

      We cannot run a modern welfare state on neoliberal models of taxation. The Tories obviously want to give up on the welfare because having been handed everything on a platter all their lives, they resent poor people getting free health care and education. We’re going to lose our NHS as a result. Britain loves Charles Dickens and Downton Abbey so much that we want to live in that time again. We will get what we deserve.

  2. Patrica Leighton says:

    A timely reminder of how crazy our politics now are.On the assumption that no-one cares, whatwill be the outcome? I agree with the point that borrowing has now become ‘investment, but why don’t they at least check out ‘waste’ rather than just spending more and more.Why will no-one even mention ‘incompetence’ and ‘failure’?

  3. Perry525 says:

    Labour saved our banks, by importing from Japan – Quantitative Easing. The Tory party continued the policy, creating money from fresh air.
    During the last ten years this had enabled the already rich to double the amount of money they have.
    This lead to a problem. The EU only guarantees up to 100,000 Euros in each of our banks, with so few banks and building societies the only place left is Government Bonds/Guilts.
    The rich will not invest, they need somewhere to put their money, somewhere safe. The solution, lend the money to our Government – where it is totally secure. Most of our debt is money lent to our Government by residents in Stirling.
    As our Government is Sovereign with our own currency, this debit is totally insignificant, paying interest costs nothing, simply creating money by the touch of a key on a computer.

    • gtdalgleish says:

      … and this situation can continue indefinitely?

    • jayarava says:

      Virtually all money is created from fresh air and has been since 1694 and the founding of the Bank of England. When you say “Most of our debt is money lent to our Government” you have it the wrong way around. On the contrary, most of our money is debt.

      You vilify this fact at the beginning and praise it at the end. Suggesting confusion.

      What enabled the rich to get richer was a combination of deregulation and refusal to address the taxation system. Deregulation allows the rich to create quasi monopolies which crush competition, allows them to gouge the market, and to move their capital offshore (at no cost) for the purposes of taxation. And they pay no tax.

      But you are right that to the extent that governments borrow from their own people, the debt is insignificant. Which is why Japan is still solvent with debts of 200% of GDP. Unfortunately most of the UK govt’s debt is owed abroad now, because of the removal of capital controls.

      • Dipper says:

        “Deregulation allows the rich to create quasi monopolies which crush competition”

        That is a well known issue in businesses which governments continually address with a view to stopping cartels and oligopolies exploit others. Obviously the biggest monopoly of the lot is the NHS. I look forward too future Labour governments promising to abolish the monopoly of the NHS and introducing competition into health care.

        • jayarava says:

          The NHS quasi-monopoly is not the same because it is not predatory or exploitative in the way that monopolies in, say, the oil or media industries are. In the USA, insulin costs 10x as much as it does in Canada. Same product, same manufacturers even. But the cost is 1000% more, because south of the border, neoliberal ideologues have framed medicine as a business and deregulated it to allow monopoly-style powers. And means consumers pay more and if they cannot pay, they die.

          When you combine competition but take away antitrust laws then you get exploitation of citizens by the billionaire class. This is why neoliberalism is an incoherent ideology.

          The NHS prevents profiteering. It is no surprise that the profiteers hate it. What is strange is that so many of the prey seem so very keen to unleash the predators. Perhaps these people feel that they can also become profiteers. After all, in an ecosystem with lions, there are also jackals and vultures waiting for the scraps.

          The weird thing in the church of neoclassical liberalism is that humans do so much better when we stop competing, pull together, and cooperate. Unrelated individuals working together on a large scale to achieve common goals is pretty much the defining feature of humanity.

  4. Tony Holmes says:

    If you showed a graph of debt service costs as a % of GDP (taking into account remittances from BOE to Treasury because of QE) alongside that of debt/GDP, it might help to explain why politicians are more relaxed….

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