July 6, 2014 by Paul Goldsmith
The UK has one of the largest budget deficits in the world. The amount that our government spending exceeds our tax receipts as a percentage of our GDP is about 6%. France’s deficit is about 3% and Germany’s has almost been eliminated. We had one of the largest deficits of any European nation and we are only about halfway to eliminating it.
This means that our National Debt will peak at a forecast £1550 billion in the next parliament. That is £1.55 trillion – or, if you want to look at the number in all its glory, £1,550,000,000,000. That is about £60,000 per UK household and means that interest payments on our debt will be more than £50 billion a year, which is more than we spend on schools and more than double what we spend on national defence.
The Labour Party will tell you that when they left Parliament the National Debt was half that. Yes, but they left Parliament with a budget deficit of £168bn (it is under £100bn now). Every year there is a deficit, that gets added to the national debt (so if the debt was £1 trillion and the deficit is £100bn the new debt would be £1.1 trillion). The Coalition have been trying to get the deficit down whilst having every cut opposed by a combination of pressure groups, unions and, yes, the Labour Party.
You can’t just magic away a deficit of £168bn, you have to raise tax revenue and/or cut government spending. Tax revenue can be raised by economic growth – but that will only eliminate what is called the ‘cyclical’ deficit – which is the part of the deficit that is caused by the natural economic cycle of recession and growth. The rest of the deficit is a ‘structural deficit’, and to get rid of that we need to take some more drastic action.
You might, listening to the news, have thought that the action I have mentioned above had already been taken. Local government spending has been cut by 30%, the foreign office budget by more than 50%, justice by 35%. One million jobs in local and national government have gone in this parliament and VAT has risen to 20%.
So we have half the deficit cut. We now need to do the other half – plus, we need to actually generate a surplus or we can’t pay back our debt. Think about it, at some point we will need to pay back that £1.5 trillion debt – and for that we will need our surpluses to add up to £1.5 trillion.
How will we do that, given we have a number of departments now, such as local government, justice and the foreign office, that cannot be cut much further. At the moment, a bill is going through Parliament to make it law that we give 0.7% of GDP in foreign aid, so that’s protected, and it will take a brave politician to make cuts to the NHS – even though ring-fending that has made austerity very hard to implement.
So what can we expect. Well, here are some possibilities for Austerity 2 that might make you realise how hard it will be (and also why George Osborne might be quite happy to leave the Treasury and become Foreign Secretary if the Conservatives win the next election):
1) Charges to see a GP
2) Charges for missed GP appointments
3) Higher prescription charges
4) A reduction of benefits for wealthier pensioners
5) An uncapping of tuition fees
6) Tolls on our motorways
7) New council tax bands for large properties
8) The closing down of entire Whitehall departments
9) Many more job cuts among the civil service
10) Technology replacing teachers as the public sector becomes subject to the same disruptive forces transforming private sector industries
These are just things that could happen – and if you don’t find them palatable then by all means vote for a Labour Party that will probably promise you just a bit more tax or a Conservative Party that will promise you just a few more spending cuts.
But don’t be surprised when what happens is a lot more drastic.