Tuesday, 17 August 2010

Up to our eyeballs in debt

So, as I guess you know, the UK is in a lot of debt. As I write this, the figure is a bit over £947 billion but you can see the exact amount by clicking here . The problem isn’t just that the UK is in a lot of debt, it’s that we’re in a lot of debt and the amount of debt is increasing – according to Government figures the UK ran a deficit of £159 billion in 2009, meaning that the UK’s national debt went up by £159 billion.

I hope I’ve explained here the difference between ‘debt’ and ‘deficit’, and I’ve tried to do this because the two words seem to get mixed up a lot. I remember a few news items in the period leading up to the general election last May where journalists and politicians talked about ‘getting the country’s debt under control’ or even ‘reducing the national debt’. What they actually meant was ‘reduce the national deficit ’, so that we were still getting into more debt, just not as quickly as before. The Labour Party’s manifesto for the 2010 general election set a target to ‘more than halve the deficit over the next four years’ (see page 11). I’m cynical about politics-speak so forgive me for taking their minimum figure of halving the UK’s national deficit. Working from that 2009 deficit of £159 billion, we can rephrase Labour’s target as saying ‘we will take action so that at the end of 2013 the UK will still be losing money, but at a rate of less than £80 billion per year’. Assuming they knocked £20 billion off the deficit each year, that would leave the UK with a national debt of something like £1,300 billion at the end of 2013.

But anyway, that all sets the scene for my latest musing, which is about how seemingly intelligent people can come to such hugely different views on the best response to the national deficit and debt. The new (does it still count as new?) government believes that the deficit needs to be reduced pretty quickly and they have their share of commentators, journalists and so on applauding their stance. And, a little to my surprise, it seems that the majority of the population agrees for now. This graph is from a report released today by Ipsos MORI. (Click here and go to page 23.) People were asked whether they agreed or disagreed with the statement, ‘in the long term, this government’s policies will improve the state of Britain’s economy’. And taking the percentages of people who agreed or disagreed, 23% more people agreed.

But there are also many joining Labour in arguing forcefully and loudly that the government’s approach will end in disaster, bringing on the dreaded ‘double-dip recession’. Click here and here for a couple of recent examples from the Guardian. It seems to me that both the ‘cut now’ and ‘cut later’ groups want basically the same thing; for the UK to return to lasting economic growth as soon as possible. So how is it that they’ve come to pretty much opposite opinions as to how best to reach this point? I thought economics was supposed have a strong scientific, objective basis? Help me out, folks!