ALEX BRUMMER: How terrifying the country now owes £2 TRILLION – and it’s the young who will have to pay
How much debt is too much debt? That is the question millions of us will be asking tomorrow morning when confronted by headlines proclaiming that pandemic spending has sent Britain’s national debt — accumulated borrowing down the ages — soaring through the £2 trillion mark.
Let me spell it out. £2,000,000,000,000.
It is a truly terrifying sum.
What it means is that each of Britain’s 25 million households now has a public debt burden of £80,000 hovering overhead like a volcanic black cloud that may take decades, if not generations, to disperse.
Another £36.1billion was borrowed in September – the third-highest month on record and compared to just £7billion a year ago – as tax revenues slumped and the Treasury poured out bailout money
As Covid infection rates rise, forcing large areas into ever more restrictive lockdowns, local authorities, schools, trades unions and some senior politicians — including former Labour Prime Minister Gordon Brown — are demanding the extension of the furlough scheme beyond the end of this month in addition to other lavish spending to deal with the economic fallout from this new phase of the pandemic.
One understands their concern but they should be honest about the implications. The burden of paying back the extraordinary levels of borrowing will fall most heavily on our youngest citizens, who have already taken a devastating hit.
Their education has been severely disrupted, and their chances of employment reduced as businesses look to cut costs. Even temporary jobs — weekend or evening work in bars, coffee shops and restaurants that many relied on as students or before finding that first job — are denied them by the collapse of the hospitality sector.
The growing fear is that young Britons — like their counterparts in Greece, Italy and Spain whose lives were shattered by the euro crisis of 2010 — will become the UK’s troubled lost generation.
Because however generous the help for apprentices and the Kickstart Scheme spelled out in Chancellor Rishi Sunak’s jobs plan may be, it won’t be enough to prevent permanent scarring.
The sheer scale of Britain’s borrowing and debt mountain is laid out in detail by the Office for National Statistics for September. In this one month alone, the UK added £36.1 billion to the national debt. In the months from April to August, the country ran up new bills of £172.4 billion. That far exceeds the £150 billion of borrowing run up during the financial crisis of 2008/9.
And the latest data takes no account of plans unveiled in the Chancellor’s Winter Economy Plan. These do not include £24.3 billion in extra spending related to Covid-19, such as vaccines, medical services and test and trace, as well as extra funds to local authorities.
In addition, Sunak extended the VAT cut to the hospitality sector and provided for a new Job Retention Scheme, which pays up two-thirds of income for part-time working.
And, today, the Chancellor will unveil plans to provide extra help to businesses in Tiers Two and Three.
When the reckoning comes, Britain’s borrowing for this year alone will likely hit a mind blowing £372 billion.
It is frightening to reflect that even after ten years of severe cuts and austerity begun under George Osborne and the Coalition government, the budget was never actually balanced. The national debt still stood at close to 80 per cent of total output (gross domestic product or GDP).
New forecasts by the International Monetary Fund (IMF) show Britain’s debt, currently equal to the total annual production for the whole economy, will sail through the 100 per cent mark sometime this year and is set to hit 117 per cent of GDP by 2025.
We are not the worst offenders, and better placed than France, Spain, Italy, Japan and even the world’s leading economy, America. Those of us of a certain age will remember the shocking moment in 1981, soon after Ronald Reagan became president, that U.S. debt levels exceeded one trillion dollars.
Reagan and, later, Bill Clinton launched a crusade to balance the budget and lower the country’s debt burden.
However generous the help for apprentices and the Kickstart Scheme spelled out in Chancellor Rishi Sunak’s jobs plan may be, it won’t be enough to prevent permanent scarring
But the most recent IMF data shows that as a percentage of GDP, debt levels in America are even bigger than in the UK at more than 100 per cent.
The difference is that the U.S. dollar is the world’s main reserve currency, so most nations, including countries sitting on big trade surpluses such as China and Japan, hold big stocks of the greenback. This allows the U.S. the extreme privilege of ever more borrowing because it can keep the printing presses running.
Sterling is not a reserve currency, but that’s not to say we do not have some advantages over most other advanced countries.
Britain has never in its history — even during the darkest days of World War II, when borrowing levels surged to 25 per cent of output (against a likely 16 per cent this year) — reneged on its loans. (Gordon Brown paid off the last of the war loan, the perpetual debt created to finance the fight against Nazis, in 2006.)
As a result of this stellar record, the UK retains a healthy global credit rating and is able to borrow at historically low interest rates.
Governments fund their operations by the issue of bonds known in Britain as gilt-edged stock.
The perceived security of a British government guarantee means there is no shortage of buyers, even as this pandemic rages and we head towards Brexit.
The most enthusiastic customers are the banks, insurers and pension funds, which are required to hold gilt-edged stock as a safety net against bad times.
The Bank of England is also a big buyer of UK bonds, with a £300 billion programme put in place since Covid took hold here. It is widely expected to announce further purchases of up to £100 billion next month.
By buying bonds for cash, the taciturn Governor of the Bank, Andrew Bailey, is also able to keep the banking system lubricated so it can try to save as many companies brought to the precipice by the pandemic from tipping over the edge.
The UK is also fortunate in having friends, including Gulf states and Norway’s state-owned oil and pension funds, which still seem to regard gilts as a safe place to invest their money.
That said, what I find disturbing about the current borrowing binge is how much of the money has been wasted.
Earlier this month we learnt that as much as £24 billion of the £38 billion of Government- guaranteed Bounce Back Loans for the smallest businesses may never be paid back because of failures and fraud, with the system allegedly infiltrated by mobsters.
According to the National Audit Office, the furlough scheme may have protected jobs but it has also been abused, with as much as £3.9 billion at risk.
The Government had little alternative but to support the economy through this crisis in the belief that growth will be restored eventually and many jobs saved. But there is not a great forest of money trees out there that the Chancellor can keep on shaking.
Governments have a sacred duty to spend taxpayers’ money wisely. As the American Senator Everett Dirksen famously observed: spend ‘a billion here, and a billion there, and pretty soon you are soon talking real money!’
As important as it is to keep businesses oiled with cash and people in jobs, the bills will eventually have to be paid.
That is a sobering thought for all of us right now as calls to keep the spending spigots open multiply.
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