Opinion: Labour and Debt
Jason Johnson asks the question: why are some politicians so persuaded by debt? Submit your opinion article here.
Yesterday we saw the Labour manifesto and an insight for the first time for many, into the ideology that makes Jeremy Corbyn and his Shadow Cabinet tick.
In his opening statement Corbyn talked of the Wilson Government in the 1970’s and proclaimed them as radical and visionary. History of course shows that in 1976 the then Chancellor Denis Healey went to the IMF for a bailout in very much the same style as Greece and many others have in recent history. That loan given by the IMF was for £3.9billion, then the highest loan ever given out by the IMF at that point in time.
Todays public sector debt, as report by the ONS, is as of January 2017 £1.7trillion this is rounded up by a few pounds and is 85% of GDP and rising, now unless I am mistaken debt has to be repaid, regardless of who you are. The UK borrows its cash from many sources but around 35-40% comes from pension funds and insurance companies, that is money people like you and I save for our future. We also borrow from foreign investors who whilst confident that the UK can repay debts will charge small amounts of interest on this money.
Now in 1976 despite many warnings from Healey that the country was living way beyond its means and in direct opposition to Tony Benn who was the then Trade Secretary and who was against anything may incur seeing wage grow slow and in the face of continued Trade Union strikes in Public Sector business, the country was forced to ask the IMF for help. Interestingly among one of Corbyn’s idols is Tony Benn. This all came after the United States of America lent the Wilson Government £5.8billion as a short term loan.
Now yesterday we heard that Labour, in the mold of the 1970’s Labour Party, wish to borrow heavily as well as drive up taxes to fund a huge spending spree, sighting as always that the UK is a wealthy country. In practice the UK is anything but wealthy. We are able to make debt repayments today of around £55billion per year on interest alone. That is more than we spend on Defense, Local Government and Law & Order, its approximately the fourth largest area of public spending and its getting larger.
It is often said the Conservative austerity plans have failed, however, many say we have not had any austerity yet as we haven’t paid down our national debt, but how could any government faced with the massive issue of public debt in the wake of the banking crisis sensibly pay off this debt, well of course you cannot, the first rule in circumstances like this is to ensure survival of the working person, this was achieved in a fashion. You then make cuts to public spending gradually whilst borrowing to fill the hole, in simple terms using a credit card, knowing that once you have curbed spending, longer term commitments are paid off and then you can start to spend within your allowable limits, IE what your earn and create a surplus, which you use to pay of the credit card.
Currently the UK is heading back into monthly surplus on its monthly spending accounts, IE our income now exceeds our outgoings, but our Debt has not shrunk it has grown dramatically and what many people and worryingly most of Corbyn’s front bench fail to understand is the difference between deficit and debt. This country is deep in debt. Should our economy fail, should the UK need to head to the IMF for a bailout due to irresponsible spending, I can assure you that we will not be able to barrow the sum of money required to plug any hole, then we will see real austerity and the pain that this will cause the poor, we will in effect be back to the 1850’s and the work house.
So in my opening statement I said this gives us an insight to Corbyn’s ideology. Tax, Borrow and spend, but as in 1976, with significantly less debt in 1976 and the pound already suffering a devaluation following Brexit that Corbyn’s Labour party plans a spending spree this country cannot afford. The prospect of interest rate raises globally and domestically and the fact that we have actually seen little real austerity, remember to look to the cuts made in Greece if you want proper austerity, the UK electorate should be panic stricken by the thoughts of more spending.
Whilst wages are stagnant and living standards maybe falling currently comparatively to previous generations then we should be at least have the understanding of WHY, and what happens if you don’t heed the lessons of the past, as real austerity causes real pain, suffering and distress, it will blight a generation and more if we believe that we can spend our way out of a continuing financial crisis. I don’t doubt that something must change, but spending is not the answer, re-nationalization, whilst appealing to some and for some areas, our pensions are invested in the utility companies as they pay dividends.
There is no doubt our country is approaching a cross roads not just at this election but in our discussions over Brexit and the type of future economy we wish to be. The opportunities that Brexit offer us maybe the opportunity that a generation are looking for and may lead to the UK to finding a different way to handle our debt.