Borrow now, less debt later

5 Sep 2012

The economy is in the ill state of stagnation. The medicine Osborne has been feeding it simply isn’t working and as the recovery slowly dies away, the hope and faith that we will one day come out stronger and more united doesn’t seem to resonate so strongly anymore in the ‘big society’ that was meant to tighten its belt. We are constantly being told that there is no alternative, no Plan B (or C, or D) and that cuts are the only way we can remove the deficit that has been our shackles since the second great depression of 2008. But it doesn’t have to be this way. The government should step up to its responsibilities and lead the way towards a secure future for families, a secure future for jobs; a secure future for sustainable growth and accept that, for the time being, it doesn’t go hand in hand with reducing the deficit.

 

Don’t get me wrong; we need to get the deficit down, but let’s be sensible about how and when we do it. £1.5 trillion, as the independent OBR projects, will be the National Debt in 2016 (that is to say government debt, gilts and interest) cannot simply be underwritten or paid off with a cheque but must be wrestled. It is how you wrestle the economic deficit ‘bull’ though that matters. You can use the short term, narrow minded cuts attitude Osborne has adopted or take the matador route of looking to the long term and at the bigger picture, and attack the bull by the horns. Osborne isn’t a matador, isn’t a fighter to cut the deficit, or a fighter for growth. He isn’t a fighter for Britain.

For too long Osborne’s plan has relied on the private sector and the rise in tax revenues. He believes that by sacking hundreds upon thousands of public sector workers, the private sector will be able to more than soak up the public sector blood. He was wrong. Dole queues are getting longer, the cost of unemployment benefits are getting higher and the private sector cannot take the strain. As reported in The Evening Standard last week David Cameron is now considering targeting the benefits of the long term unemployed. Is this the sort of government we have in power – one which when the vital signs are weakening attacks those trying to get a job but does nothing the kick start the making of them? Is this what was always meant by giving people a ‘hand up not a hand out’- highest unemployment for two decades? I cannot blame the private sector; they weren’t prepared, saw the flood coming and didn’t have enough time to close the gates. What has happened though has been worse than a flood. The private sector is afraid of creating jobs in a no growth economy, is sitting on millions of pounds and creating a catch 22 scenario. This is an economic tsunami. With little new employment, tax revenues don’t rise and you run out of options. This causes borrowing to rise and rise until someone breaks the chain. What we need is a set of stimulus to kick start the economy. From reducing the level of cuts to directly employing people to build houses and new infrastructure, there is no point wasting money on unemployment benefits when we could be using it for growth. This is the time to borrow.

We need to use our record low borrowing costs, brought by the fact we have an independent monetary policy that is not connected to the Euro, and not by the cuts that the once supportive IMF are now criticising, to borrow now to keep public services going. We are only 12% in to the cuts and the future is looking bleak. We need capital spending and borrowing now to sure up our public services. If this is a reaction to a tenth of cuts in the public sector, imagine the future after the cuts. Unemployment above 3 million, homelessness rising, a set of lost generations. Even worse – what about the social impacts of crime, poverty and downtrodden national moral? The hope that the nation once had that the only way was up has indeed evaporated, the feeling that the nation got when we realised that we were growing again has seeped away and we now have to live in a Osborne reality of prolonged pain, a constant in the intensive care unit; until maybe one day in the next ten or twenty years we can return to where we were four or five years ago.

Borrowing has too quickly become a taboo subject. We have forgotten that for the majority of the last century we have been in debt. Debt has what has supported our growth and allowed us to maintain our position as one of the ten largest economies in the world. We cannot pretend that the management of our national budget is similar to keeping a tab on household budgets. Osborne is not a housewife; he tinkers with hundreds of millions of pounds, not a few hundreds of pounds. In my opinion debt isn’t bad. As long as you have a view of the future, borrowing and debt can play an instrumental role. It is the lack of vision by Osborne as we have dipped in to a double-dip that was never intended that means that over Dover, there will be no blue skies for a few years to come.

In my opinion we need to start borrowing now to halt cuts and spend on infrastructure and housing. Similar in size and cost to that the Labour government spent in 1945-1948 on the creation of the NHS; you need to ride the debt tsunami and ensure growth really does start, people are employed, tax is paid and we can get in to a Catch 22 scenario of growth and expansion that will ultimately repay our debt quicker. This is more than speculation for accumulation. This is a cycle of certainty; that one day, like Neville Chamberlain in 1933 said as Chancellor of the Exchequer, “We will have finished the story of bleak house and opened up to view great expectations”.

By James Wand

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