The UK is drowning in debt – but Labour could find a way to raise it even higher
Source - Daily Telegraph 30/04/23
Borrowing has punched its way back through 100pc of GDP. The UK is drowning in debt. Interest rates are going up, meaning more expensive repayments. And our tax burden is on course to hit the highest level since the Second World War, making it virtually impossible to raise them any further.
If the Labour Party takes office within the next two years, as many people believe is inevitable, it will in many ways be more limited than any incoming administration for the last fifty years.
As its MPs surely realise, there is only so much money that can be raised by ending non-dom status.
Yet it may find itself with a whole new way to analyse and present our fiscal position: the recently-introduced measure of the country’s "net worth".
The trouble is, it is every bit as bogus as every other wheeze for squeezing more money out of the bond markets – and will only make the UK’s financial mess even worse.
We now have a Prime Minister who is committed to "fiscal responsibility" over all else. Jeremy Hunt's Autumn Statement promised £28bn of spending cuts (though much of it is backloaded until after the next general election). Taxes have been taken to eye-watering levels. And yet the public finances remain in a sorry state.
Data released on Friday revealed overall public debt has risen above 100pc of GDP. Like in countries such as France and Italy, the British Government is now so hooked on spending, on living beyond its means, that the debt rises regardless of any attempts we might make to control it.
But perhaps there is a solution at hand – for our political elite at least. We could look at the data in a different way. This week saw the debut of a brand new government statistic: "public sector net worth" (PSNW). It takes into account a far broader range of assets, such as buildings or railway lines, in order to try and come up with an overall balance sheet for the British state. And funnily enough, that looks a lot better.
According to the Office for National Statistics, PSNW shows a deficit of "only" £605 billion, instead of the £2.5 trillion as measured by the actual amount of money we owe.
Of course, there is something to be said for looking at the overall financial position of the government instead of just debt. A private company, or indeed a household, would assess its overall balance sheet before deciding how much it could afford to spend, and more importantly how much it could afford to invest.
The Government does have assets that it could potentially realise if it needed to, or which might be sold off at a profit one day, and it makes sense to assess those to get a bigger picture of its financial position. Ultimately, it can provide us with a more accurate picture of the long-term sustainability, or otherwise, of the nation's public finances.
Here’s the problem, however. There is surely a risk that the Labour Party might seize upon it to fund its expansive spending agenda. A future Conservative government desperate to find any way to keep the spending juggernaut going might also find it a useful measure.
Bloomberg this week reported private briefings from the Labour Party arguing that "net worth" would be a far more useful measure than plain old conventional debt. And we can expect to hear a lot more about it in the small print of its plans for taking office.
After all, used in the right way it could allow the government of the day to increase borrowing. With the right kind of statistical cover, the Office for Budget Responsibility might even give it an official seal of approval. With the wave of a single, statistical wand, it would make hundreds of billions of pounds of debt magically disappear, freeing up hundreds of billions more for extra spending.
Even better, if it claims all the money is going into "investment", a term copyrighted by New Labour which endures today, then it can argue the "net worth" stays the same. Spending will get added to that side of the books, and governments can keep borrowing forever.
But this isn't the whole picture. Yes, the state owns assets, but they are hardly assets in the way a private company would assess them. Can a hospital really be flogged to a Chinese property developer to turn into luxury flats? One could imagine that might stir up a little controversy. Could the local school playing fields be dug up to make way for a new Amazon warehouse? Again, it might run into a little resistance.
Are all those student loans the government has advanced really an ‘asset’ in the same way as the money a building society lends on a house, given that it does not get repaid until a certain income threshold is met?
In reality, an asset in any meaningful sense of the word has a variety of different uses, which can be dispassionately assessed according to which one will generate the best returns. And yet, that is not even remotely true of what the government owns.
Just as seriously, those assets are subject to constant manipulation. There is no real market in them so it will be very difficult to get a reliable assessment of what they are actually worth.
Assessing the country's "net worth" is a meaningless exercise that will only encourage governments to manipulate the way they view and present figures even more than they already do.
It doesn't matter who is in power: "austerity" is a dirty word and the Treasury is running out of new revenue streams. But based on recent announcements, any incoming Labour government will be eager to find ways to turn the public spending taps on full.
The blunt reality is that the UK borrows too much, and spends too much on hopelessly unproductive public services that deliver very little, and which crushes the life out of what little remains of the private sector.
PSNW won’t make any difference, far from it. It simply risks facilitating taking debt totals to higher levels than they already are.
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