There’s a shadow hanging over the UK and the rest of the Western world, but most of us prefer not to think about it.
John Healey may be the only Labour politician who understands the danger of debt (Image: Getty)
If we’re not careful, it will soon be all we are thinking about. Because it lies at the heart of the crisis attacking us on so many fronts today. Britain just set a new and unwanted record as our national debt climbed above £3trillion for the first time. It’s a terrifying milestone, one that would have been unthinkable just a few decades ago. Now here’s the really terrifying bit. It took the UK 300 years for national debt to hit £1trillion in 2010. By 2020, it had doubled to £2trillion. The next trillion took us just six years. It’s on course to reach £4trillion within the next decade. Assuming everything hasn’t blown up by then. It might.
In 1990, when Margaret Thatcher stepped down, national debt was 28.3% of annual economic output, or GDP. When Gordon Brown was voted out in 2010 after the financial crisis, it had rocketed to 64.6%. Today, it’s nudging 100% of GDP. That increase mostly came under Conservative rule, although the pandemic hardly helped. During the coalition government, chancellor George Osborne tried to reduce the annual deficit, and was slammed for inflicting “austerity” on the nation. It was a funny sort of austerity. We still ran a deficit throughout.
The last time Britain recorded a budget surplus was in 2000/01, when Gordon Brown was still following spending limits inherited from the Tories. Then he opened the spigots, and Britain has run a deficit every year since. Labour is showing little sign of reversing that. In September alone, we borrowed another £21.2billion, despite rocketing HMRC revenues thanks to Labour’s tax blitz. We’re on course to add another £121billion to national debt this tax year. It may be more. Incredibly, Britain is not the worst offender. Our current budget deficit is 4.3% of GDP. In France, it’s 5.4%. In the US, around 6.2%. Neither country is showing much sign of doing anything about it.
Under Donald Trump, US national debt has reached a stunning $40trillion, equivalent to 123% of GDP. France is close behind at 119%. They make us look good. Almost. The French may riot at the drop of a hat, but debt is at the heart of their troubles. Every time the country hits the streets, politicians respond by throwing money at the protesters. Today, children are demanding more cash for their schools. In the past, they might have got it. Today, France doesn’t have the money.
Years of near-zero interest rates after the financial crisis allowed politicians to get away with this. Those days are over. Interest rates on French government debt have just topped 5%, the highest in a quarter of a century. The US gets away with its debt pile because the dollar is the world’s reserve currency and a safe haven in a crisis. But it can’t take privilege for granted forever.
As inflation rises, our borrowing costs will climb further. The UK government already spends £1 in every £10 on servicing debt. Last year, the interest bill cost us £109billion. Money we could have spent on the NHS, pensions, the military, roads, schools or tax cuts. We’re borrowing £4,000 every second.
Andy Burnham infamously said we “have to get over this thing about being in hock to the bond markets”. There’s only one way to do that. Stop borrowing so much. There are signs Chancellor John Healey gets it. He warned the Labour Party conference that the money isn’t there. Delegates didn’t want to hear. Britain is now living on borrowed time.
Across the left, phoney economists claim we should stop worrying about debt. Borrowing is fine so long as the money is invested. This is delusional. All they want is an excuse to spend even more, and pass the bill onto our children.
Healey’s Budget on Wednesday should focus on cutting spending, growing the economy and getting debt down. If he does that, gilt yields may fall. The Labour Party won’t like it, but fiscal discipline is no longer a luxury. It’s a matter of survival.
When Louis XVI was mired in debt, the French Revolution followed. The English Civil War could have been avoided if a heavily indebted King Charles I hadn’t kept tapping up Parliament for more cash.
When debt builds, heads roll. Healey needs to get on top of our debt pile, fast. Britain isn’t quite as profligate as the US and France. We need to keep it that way.