Wednesday, January 06, 2010

Government Indebtedness

In 2009 the national debt rose to £829.7 Billion this is all money that must be serviced by the tax payer. This figure does not include Private Finance Initiatives and Pension Contributions which the Government is obliged to pay meaning the true debt figure today is likely to be in excess of £1,350 billion which is way above what could be expected to be collected in a single year in tax. The level of debt is rising, and could sky rocket again based on pledges to buy back Mortgage securities. Potentially, in a very bad case, the UK Public Sector debt could be in debt to the tune of the £2,000 Billion bracket in 2010.

To service the interest on our debts, like all borrowers the Government must pay interest. In 2009 the Government paid over £31 billion in debt interest, this is very close to the number (£32bn) the UK pays on the entire defence budget annually. Nearly everybody outside the Labour Party in the UK agrees that this Government has made some serious mistakes with the economy, but I don't personally think it is enough to lay the blame at the feet of the current Government and simply repay the national debt down to a level that is more comfortably managed… We should force a change of the rules so that no party can ever make its people so indebted ever again. Governments of the three parties that have held government in the last 150 years have all had at some point high levels of public debt, and often that debt rose with little consent from Tax Payers.

As an electorate, and as a country, we should demand from our political parties not only a commitment to cap national debt today until a General Election has taken place, but we should also demand that national debt is paid down to a level of 0% of GDP over a period over the next 5 Parliaments.

Yes, Governments have been borrowing for centuries, and yes, in the good times economically debt can be borrowed and serviced somewhat cheaply. However, the rules governing Government borrowing and spending are not so dissimilar to the rules you and I face in managing our household budgets. If you borrow, you must pay interest on that. I think it is easy to make a case that the need to raise in excess of £31billion in taxes simply to pay interest is immoral. We all know the folly of those who have put too much on their credit cards, and who attempt to live on credit... they pay through the nose.

In my opinion with Tax Levels so high, Governments should seek to have no debt, and to work with a budget in credit. If the budget was in credit, the Prime Minister and Chancellor would need to set out the public finances in a different way, in a bad year they would have to balance to no worse than £0. Taxes should be sought to pay for the next year’s spending and to keep a sensible reserve. It would be illegal to manifestly propose legislation that cannot be met through current taxation, and thus all government expenditure would need to be set in terms of how much each of us would pay in tax over the following year or years. No Government could employ a scorched earth policy of engaging in unfunded spending in the run up to an election. In an emergency the Chancellor or PM could address Parliament - our representatives - and ask permission for to take out a short-term loan on our behalf and set out the implications and costs of such a loan and more importantly explain why they were unable to foresee this need in advance. If Parliament refuses, the PM and Chancellor will have to find the money from existing finances. The reserve would be there for spikes in spending, but our money would be invested and earning money and interest and all spending from the reserve would have to be explained annually at Budget time.

In the event of war, well, this idea would not work... however, debt would be accumulated from £0 or surplus, rather than beginning to rack up more debt on top of a position such as the £1,340 Billion already in place today.

Working in surplus would give the nation a sense of pride that the public finances are in order and provide a greater degree of control over Government, as Government can stop listening to the people they owe money to and listen to what people want their money spent on.

Another crazy idea on this blog perhaps, but makes perfect sense to me. The way to achieve this is to petition the current parties until they relent and accept the responsibility of managing public finances in our interests, not theirs. There is no partisan reason for the continuation of government indebtedness for the rest of time; all that is needed is the realisation that this would be an idea widely accepted by the public... Then for us to use our voices to call for some lines to be drawn and some belts to be tightened.

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