Blog 2023 Malcolm Blair-Robinson

At the moment all the political argument is about the cuts and their effect. Arguments break out about this service or that. More police or less and so on. Yet the very large numbers marching through London at the weekend demonstrated real unease.  We ar now in the second phase of the cuts programme. The first phase was the announcement of the plan expressed in terms of percentages. This had broad public support. The next is the current phase, when the impact of cuts is spelt out in specific areas. This still retains majority support, but only just. The third phase will be when the axe actually falls on jobs and services. This is about to happen. The public mood will at best be sullen, if not  hostile.

To the extent that there is debate, it is very simplistic and far short of honest. Osborne, who is doing much better than most of the rest of the government, is a monetarist and cutting, axing and trimming suits both his philosophy and his temperament. Opposed by a more strident and confident Ed Milliband (where is Balls?), he still comfortably occupies the high ground from which he is able to proclaim there is no other way, he is backed by the international markets and agencies and, anyway, the whole thing is Labour’s fault. Labour says, but few believe, that there is another way; cut less over longer and it will not hurt so much. Oh, yes it will, because to do that requires borrowing more and paying more interest on the increased borrowing, which takes cash out of the economy, just like a cut, but leaves a bigger loan to repay. So long as voters are willing to see their own interests in tandem with the national interest, Osborne will prevail. If, in desperation, it becomes every voter for themselves, they will start to listen to Milliband, or even Balls (if he turns up).

Now is therefore the time to look to the heart of the matter, since that and that alone, can point the way forward. There is, in a portfolio of figures available which can be used to support almost any viewpoint or argument, one which is unusually compelling. It is the figure for external debt by country. There are 189 counties listed starting with the ones with the biggest debt. Top of the list is the U.S. with $14.3 trillion. This is 98% of U. S. GDP; the world average is 95%. Britain rides in at number 2 slot. The figure is $8.9 trillion (yes!) or 398% of GDP. Next comes Germany, then France, but our total is greater than their two figures put together. The U.K. economy is massively over borrowed at every level, national, corporate, personal. The good news is that things are getting better. The 2009 figures had us at 416%of GDP. 

Indeed such is the shambles of what was once a great manufacturing and producing nation, that the New Labour economic model ended up as an economy simply recycling borrowed money. Even the tax paid was sourced in borrowing. This is what the government now has to deal with. Cuts are a detail. The whole show is off the rails. 

The economy must become one which produces real new wealth, employing people in jobs which add value.  Because we have become addicted to the public sector, the burden of those salaries and pensions is now and will become even more, unsustainable. Borrowing must reduce as a percentage of GDP at all levels. People and the government must spend earnings, not borrowings, save more and pay down debt. Housing cost must reduce still further until the average price is no more than 3x the average earnings. Business start ups must rely more on investment and less on loans. Bank lending must remain cautious. Inflation must be contained soon and asset inflation must be curbed by restrictive borrowing. Fiscal discipline must become a national habit at all levels.

To achieve all that, cuts will have to feature. So far, the government is right on strategy. There are good signs. Manufacturing output is increasing at record levels and debt and new borrowing are reducing. As to the detail of the cuts, I think it may have been a mistake to go for an across the board percentage. Some sectors were already under resourced, while others should be drastically curtailed or even shut down altogether. More charges could and should have been introduced for NHS treatment on the lines of prescription charges and paid by the same groups. This is already the case with dentistry. There are loads of ways of dealing with this and not all were explored. There will be scope for adjustment still.

But at the end of the day the job has to be done and the sooner the better. The coalition is sound on the economy, has taken brave decisions and in the case of the Lib Dems, manifestly put country before party. Labour remains in denial. By their method it would take more than half a century to sort this out and even then the state sector would be too big for the private sector to fund. So what would happen? Yes, more borrowing.

This entry was posted on Thursday, March 31st, 2011 at 1:43 pm and is filed under Malcolm Blair Robinson. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.