If It Isn’t Osborne, It’s Oborne; No, The UK Will Not Go Bankrupt. EVER
December 5, 2014
(Well, Not Unless It Chooses To.)
by Martin Odoni
One recurring myth about the National Debt, a myth that simply refuses to release its expiring gasp, has been given plenty of fresh oxygen once again this week, in the aftermath of the Autumn Statement by George Gideon Osborne – our economic mastermind par excellence*. One example of this is from the Chancellor’s near-namesake at the Daily Telegraph, Peter Oborne, who wrote an article criticising Osborne for having a far less impressive hand on the public finances than the man himself seems to imagine.
On the one hand, it is quite refreshing that the Telegraph, of all newspapers, is willing to take a Conservative Party Chancellor down a peg or seven. In recent times certainly, when he has not been looking suspiciously trippy, Osborne has looked much too pleased with himself for ‘achieving’ a year of modest growth in GDP, which happened far more by chance than by any shrewdness or thrift on his part.
But on the other hand, when reading the article it becomes depressingly clear very quickly that Oborne’s stance is not that Osborne has been taking the wrong approach, as such. Instead, Oborne argues that the Chancellor has not adhered to Austerity stubbornly enough, that he has not taken it to the extremes that, supposedly, will start the long process of paying off the National Debt. Oborne despairs that at various awkward junctures, Osborne has ‘chickened out’, almost, of applying unpopular cuts for political reasons. (It says something about Telegraph journalists, by the way, that the only reason they can think of not to apply ruthless and cruel policies is political expediency. It may well be true in George Osborne’s case, but moral reasons could apply, as well as practical reasons, such as the fact that a lot of the cack-handed Austerity measures implemented by the Coalition have done more harm to the economy than good.) Oborne writes; –
“The national debt continues to spiral out of control. We are closer to insolvency today than we were in 2010, when Mr Osborne took over control of Britain’s finances. Our debt will soon surge beyond £1.5 trillion – a prodigious sum which is not far off twice the level the Tories inherited from Labour. Public spending has fallen by a remarkably small amount over the past five years.”
Well, the excerpt is correct from the third sentence onwards, but before that, Oborne is completely wrong.
Firstly, in the sense he means, the National Debt is not ‘out-of-control’ as such. It is higher than is politically healthy, and it is certainly going up without a pause, but it needs to be recognised that – with the exception of the odd account here and there with longer-term conditions – near enough every penny that was owed in 2010 was paid ages ago, without any difficulty. Almost all of the Debt in the current accumulation has been borrowed since the Coalition came to power. The reason the total keeps going up is because the Government keeps borrowing more than it pays off. But the critical aspect is, the Bank Of England does keep paying back the creditors, automatically and with no difficulty, and no matter which party is in power. Even if there were no tax receipts coming in at all, that would still happen, because the Bank Of England issues the sterling currency that the Debt is made up of. It is in fact a process that has nothing directly to do with the Chancellor of the Exchequer at all, and continues unabated no matter what policies he chooses to enact, and no matter how high or low tax-receipts are. (This is the main reason why it was probably for the best that the UK did not join the European single currency.) This is not to say that there would be no undesirable consequences to spending without taxation – it would undoubtedly have an inflationary effect – but the notion of the Debt becoming so big that it becomes impossible to keep making the repayments is an example of projecting household economics onto national economics. It is a common mistake, especially among Thatcherites, who continue to believe the late Margaret Thatcher’s nonsense about how managing the public finances is the same as “good housekeeping”. It is also worth keeping in mind that a) inflation happens anyway, b) ‘quantitative easing’ is a frequent and routine Treasury tactic, only for some utterly known reason it is almost never deployed for funding anything other than the banking sector, and c) under certain very strict conditions, especially with a responsive Minimum Wage, a modicum of inflation can be a good thing, as it is harder for the rich to keep hoarding wealth when they have to keep spending more and more in order to keep their day-to-day lives in the same condition.
Secondly, when Oborne claims that we are “closer to insolvency today than we were in 2010”, he is using, perhaps unknowingly, one of the most widely-proliferated examples of Orwellian language in the world today, and yet one that is seldom commented on. It is a little like the occasional claim in the movie version of Nineteen Eighty-Four that “the action we are now reporting may well bring the war within measurable distance of its end.” The reason I say this is because no one has ever given any solid definition of when insolvency for the UK will happen, how precisely it will happen, or what exactly will happen should it occur. We have never even been informed what level of Debt will be so great, or for how long it would have to stand, for the country to go bankrupt. If we think back to 2008-9, when the banking crisis was at its height and Gordon Brown lavishly rewarded the financial sector for its catastrophic failures with a package of bail-outs that ballooned the National Debt overnight, people of Oborne’s ilk were saying exactly the same sorts of things. “We’re about to go bankrupt! The UK economy could become insolvent any day now! The UK is set to go into default!” and so on. That was six years ago, and with the public sector Debt then standing at about £870 billion. And now, six years and a near-doubling of that Debt later, the likes of Oborne are still telling us that we are on the threshold of insolvency. After an entire Parliamentary term of the total Debt surging upwards faster than ever, if we have still not crossed that threshold, you have to ask where exactly it can really lie. Because we were clearly nowhere near it back at the time of the bail-outs after all. Indeed, National Insolvency has become a bit of a bogeyman. No one has ever seen it, no one ever knows where it is or what it looks like, no one knows when it will strike, and no one is even particularly sure exactly what harm, if any, it will do. And yet most of our Government and media seem to get the perpetual willies just thinking about it.
It is not the total amount owed that matters, nearly so much as how promptly the sums it is made up of can be paid back; bankruptcy usually occurs when loan repayments cannot be met, and when there is no indication that this is likely to change for the foreseeable future. This is patently not the case for the UK public sector, as its funding is through the Bank Of England, and so is the National Debt, which is ipso facto in a currency that the Bank Of England issues. The Bank is readily repaying the loans on time, and there is nothing to stop it from continuing to do so. For these reasons, National Bankruptcy is just not going to happen to the UK. Ever. Other bad developments, such as a heavily-inflated currency, might follow, but bankruptcy will not, because the Bank Of England can keep paying creditors indefinitely when loan repayments fall due, irrespective of how high the payments are, or of how low tax-receipts become. Bankruptcy can therefore only happen if a British Government chooses to apply for it, and why would it do such a thing, except if it knows no better?
To sum up, the National Debt is an issue, and it does have negative effects, at least in international terms regarding other countries’ willingness to keep dealing with the UK. But it is not a crisis, and it is not going to be the end of British society as we know it. The shameful exploitation by the Tories of the crisis that did occur, i.e. the one in the financial sector, using it as an excuse to dismantle the Welfare State, has in fact done no positive good at all. Not only has it caused enormous suffering among many of Britain’s most deprived and vulnerable people, but it has also scuppered the performance of the economy, which tends to function far better when there are state institutions in place to support and guide it and to help keep capital circulating around society smoothly. And most ironic of all, this dismantling process has not had – can never have – any substantial effect, positive or negative, on the country’s ability to keep repaying its debts.
I genuinely doubt Peter Oborne is aware of most of this. (Just as he is plainly unaware, judging by his article, that recent growth was not the Chancellor’s doing in the main, or that unemployment is not falling remotely as rapidly as official figures suggest.) I doubt that he is lying therefore, but I do question whether he is really qualified to commentate on these matters. That is also true of George Osborne of course, who is further not qualified to try and operate a national economy.
What a shame David Cameron let him try.
* For the terminally hard-of-thinking, I should just mention that when I give Osborne descriptions that appear to congratulate him on his economic ‘brilliance’, I am in fact being more ironic than an Oscar Wilde witticism delivered in the inescapably-sarcastic voice of Geoffrey Palmer.