Britain’s debt? We should drop it.

(c) wwarby

Discussion of how to tackle Britain’s debt has reached a feverish pitch, despite the total lack of substantive disagreement among our politicians. All agree that public services must be slashed and taxes raised. Worrying looking numbers are repeated endlessly to illustrate ‘obvious’ conclusions: too much spending, too much borrowing, services must be slashed, taxes are too high, especially for ‘normal families‘.

Reports suggest that the average increase in cost to families will be £2,400 per year. This might be the average cost, but by no means the cost to the average family. The much lambasted N.I. raise only affects those earning £20,000 (the top 50% of earners), with those on £30,000 paying an extra £7.50 a month. Those on £14,000 will be better off with the new budget. Secondly, of the £2,400 ‘cost’ to families, only £500 is tax, most  is in poorer public services.

The same report insists that “the wealthiest 10%…faces by far the most pain,” which is risible. Those earning £150,000 per year will see a loss of 5% income; the ‘pain’ of earning only £142,500 doesn’t compare to a normal family scraping by on a tenth of that.

Similarly, Labour’s spending is not responsible for our debt. News that all of Labour’s increase in spending on public services “will have to be reversed if the public finances are to be returned to balance,” is being presented by the Tories as the predictable comeuppance of spending gone wild. In reality, while debt approaches a trillion pounds, total spending on the NHS is only a fraction of this at roughly £100bn. Despite howling about ‘runaway spending’ Britain still stands around 10th among 30 OECD countries for spending as a percentage of national income.

Rather than using the debt as a hammer to assail Labour’s investment in public services, the reality must be recognised. Our current debt is the entirely predictable result of our bailout of the private sector following the financial crisis, (costing 94% of GDP, around £30,000 per person) and of the recession (which has seen tax revenue fall 10% and climbing welfare bills).

To present our debt as a “crisis”, calling for panicked cuts to spending is misleading. The risk our debt represents, much trumpeted by the Tories, is wildly overblown. The UK will not lose its credit rating, public spending is easing rather than prolonging the recession, cost of repayments on government debt is negligible. Pre-bailout, the national debt was around 37% of GDP and now  is around 60%, by comparison the US’s  is 71%, while Italy and Japan are 100+% and 194%. Following WW2 our national debt was 150%. This being when the welfare state was founded, it was a time of a new consensus, not of slashing services or debt-driven ruin.

The clamour to cut services amid claims that the middle classes are clobbered by tax is spurious. Darling’s measures, if anything, slightly lessen the deep unfairness of our tax system, which remains biased in favour of the better off. Insisting that our society suffers from consumers crushed by tax to fuel a debt-ridden government is laughable: consumer debt currently stands at 100% of GDP. It is rampant borrowing by the private sector that has led to financial meltdown, with government borrowing being a desperate response to this problem. Attempts to enforce a consensus that a bloated state must shrink to avoid disaster must be rejected. To return state spending to pre-1997 levels, stretching the services that support our most vulnerable and hold together our communities represents a far greater danger than that of government borrowing.