Read more: Austerity simply doesn't work
The return of Game of Thrones seems apposite considering the current manoeuvrings and ructions going on inside the Palace of Westminster. Our own game of thrones seems to be proceeding apace fuelled, according to Justice Secretary David Lidington, by warm prosecco.
But it is regarding the scale of the national debt, not just the infighting, where I want to draw a parallel between Westeros, the fantasy setting for Game of Thrones, and Westminster. While it is often forgotten, the national debt of Westeros—due to the income of the kingdom being frittered away on the desires of those in power while forgetting basic economic literacy or the rights of those who would be expected to pay for it—was a major plot point in the first book.
Since the General Election (which I imagine felt like the programme's brutal Red Wedding-style ambush to some former Conservative MPs) some of the feuding lords and ladies of Westminster have taken advantage of the precarious position of the prime minister to advise rolling back the austerity programme of the Cameron years. Such a proposal is both wrong-headed and downright dangerous, as the underlying economic conditions that made getting Britain’s public finances in order so crucial have not changed—and, as in the show, winter is coming. The weak growth figures published today confirm this.
And there is still a huge amount to do. Far from "fixing the roof while the sun shone," as government promised during the past seven years, spending has continued to rise and the government’s debt is more than double what it was in 2008 and continues to grow. While the deficit has narrowed significantly from the highpoint of 2009/10, where the public sector spent more than £150bn more than the government was able to raise in taxes, the government is still expected to borrow some £58bn during 2017/18, equivalent to a third of the NHS budget or two-thirds of education spending.
The first is that this debt is causing significant budget shortfalls today. The government—at a period of historically low interest rates—is paying £35bn a year in interest payments, excluding the interest payments that are paid to the Bank of England. This is more than £500 each year for every man, woman and child in Britain, and it is going to simply service this debt.
Even if we were to pay off half of the national debt, the savings on debt interest alone would equal the £350m a week that Brexiteers claimed could be spent on the NHS should Britain leave.
Secondly, contrary to the reports we get about the state of the public accounts, we owe a lot more money than we realise. Because not only do we have to pay the explicit debt that we take on each year, we also have vast sums in unfunded promises that have been made around pensions and health care costs that will need to be met over the next few decades, but which we have made no effort whatsoever to prefund.
IEA research indicates that to balance the books, including this unfunded spending by the 2060’s, would require immediate and permanent spending cuts and tax rises of up to 10 per cent of GDP, a scale of cuts closer to what we saw across the Irish Sea in the aftermath of the financial crisis than anything we have had here.
Finally, real austerity is necessary simply because we are spending money today that will need to be paid back in the future, and the size of the debt leaves Britain dangerously exposed to another shock. Not even Keynes himself believed that a country can spend itself rich. He thought that government spending during periods of economic catastrophe had to be balanced with surplus during good years to rebuild the public finances.
The UK is entering a potentially dangerous period. Whatever your views on Brexit, it is bound to add some short term uncertainty to the British economy. Further afield, negative outlooks for China and the risk of another European banking crisis mean the international winds could be blowing even harder against the UK. The UK should be taking serious steps to act now, rather than risk being over-leveraged when the seasons change.
The return of Game of Thrones seems apposite considering the current manoeuvrings and ructions going on inside the Palace of Westminster. Our own game of thrones seems to be proceeding apace fuelled, according to Justice Secretary David Lidington, by warm prosecco.
But it is regarding the scale of the national debt, not just the infighting, where I want to draw a parallel between Westeros, the fantasy setting for Game of Thrones, and Westminster. While it is often forgotten, the national debt of Westeros—due to the income of the kingdom being frittered away on the desires of those in power while forgetting basic economic literacy or the rights of those who would be expected to pay for it—was a major plot point in the first book.
Since the General Election (which I imagine felt like the programme's brutal Red Wedding-style ambush to some former Conservative MPs) some of the feuding lords and ladies of Westminster have taken advantage of the precarious position of the prime minister to advise rolling back the austerity programme of the Cameron years. Such a proposal is both wrong-headed and downright dangerous, as the underlying economic conditions that made getting Britain’s public finances in order so crucial have not changed—and, as in the show, winter is coming. The weak growth figures published today confirm this.
And there is still a huge amount to do. Far from "fixing the roof while the sun shone," as government promised during the past seven years, spending has continued to rise and the government’s debt is more than double what it was in 2008 and continues to grow. While the deficit has narrowed significantly from the highpoint of 2009/10, where the public sector spent more than £150bn more than the government was able to raise in taxes, the government is still expected to borrow some £58bn during 2017/18, equivalent to a third of the NHS budget or two-thirds of education spending.
"Not even Keynes himself believed that a country can spend itself rich"There are several reasons why this matters, and why we shouldn’t listen to the siren voices who say that austerity has had its day and the spending taps should be reopened.
The first is that this debt is causing significant budget shortfalls today. The government—at a period of historically low interest rates—is paying £35bn a year in interest payments, excluding the interest payments that are paid to the Bank of England. This is more than £500 each year for every man, woman and child in Britain, and it is going to simply service this debt.
Even if we were to pay off half of the national debt, the savings on debt interest alone would equal the £350m a week that Brexiteers claimed could be spent on the NHS should Britain leave.
Secondly, contrary to the reports we get about the state of the public accounts, we owe a lot more money than we realise. Because not only do we have to pay the explicit debt that we take on each year, we also have vast sums in unfunded promises that have been made around pensions and health care costs that will need to be met over the next few decades, but which we have made no effort whatsoever to prefund.
IEA research indicates that to balance the books, including this unfunded spending by the 2060’s, would require immediate and permanent spending cuts and tax rises of up to 10 per cent of GDP, a scale of cuts closer to what we saw across the Irish Sea in the aftermath of the financial crisis than anything we have had here.
Finally, real austerity is necessary simply because we are spending money today that will need to be paid back in the future, and the size of the debt leaves Britain dangerously exposed to another shock. Not even Keynes himself believed that a country can spend itself rich. He thought that government spending during periods of economic catastrophe had to be balanced with surplus during good years to rebuild the public finances.
The UK is entering a potentially dangerous period. Whatever your views on Brexit, it is bound to add some short term uncertainty to the British economy. Further afield, negative outlooks for China and the risk of another European banking crisis mean the international winds could be blowing even harder against the UK. The UK should be taking serious steps to act now, rather than risk being over-leveraged when the seasons change.
