The Public Debt - Oh Dear

(Telegraph)

Perhaps the most shocking detail in the BIS paper is that the UK's debt will rise to 300pc of GDP by 2040 under this moderate fiscal squeeze even if it is accompanied by a freeze on age-related spending. Britain

-- unlike Greece -- can no longer rely on soft measures to cut the structural deficit, such as increasing the share of women in the work force. Such low-hanging fruit has mostly been picked already.

The BIS, in charge of monitoring global capital flows, said public debt has risen by 20pc to 30pc of GDP across the advanced economies over the last three years. Semi-permanent structural deficits have taken root. "Current fiscal policy is unsustainable in every country (in its study). Drastic improvements in the structural primary balance will be necessary to prevent debt ratios from exploding."

Average debts will exceed 100pc of GDP by the end of next year. The level was briefly higher in the US and the UK after World War Two. Japan is currently able to raise money cheaply at even higher debt levels thanks to its captive savings pool. However, the BIS said it would be foolhardy to assume that debt markets will tolerate this for long.

The BIS said the usual cure for budget deficits is a return to robust grown and lower nominal rates. Neither are likely for OECD economies this time. The West has slipped to a lower growth trajectory. Historical data shows that once public debts near 100pc of GDP they act as a ball and chain on wealth creation.

We can get our debt under control. It demands discipline and a lot of courage, but we can do it. Is there an upside - what about advantages if we stole a lead in it relative to other nations?

Isn't that the kind of deal a party should offer the electorate: "Life will be shit for a while, but we promise we'll be first out of this mess and you'll get the advantages of that when we are"?

The question, of course, is do we have leadership with the courage to take such a risk with their political career as would be necessary to do it? Do we have a leader who'd step forward with a plan that could result in their career being very short if it went wrong?

We will get that leader - we're not going to drift into a debt spiral and do nothing about it. We'll have a bit of social crisis and an awful lot of arguing, then we'll accept the hardship and do it.

The best thing would be for the markets to give us a sign, right now, during the election campaign. It would be like a star in the East - we'd find our leader under it.

Apparently when Sweden was in a very similar position they started by imposing

11% cuts on all departments (R4 Moneybox special last Saturday on our national debt). There was some horse trading, obviously, but that was roughly what was required to stabilise the books.

Can anyone see that kind of courage -- from both politicians and electorate -- coming in the UK?

I can't. The debt markets will impose it from outside, so the only certainty I can see is higher interest rates and a very long, slow climb out of this self-imposed cesspit... probably via the kind of inflation making me less well off this year, despite what the government stats say. The official inflation figure is as meaningless as GDP these days.

Andrew McP

Also, even if we had leadership with that courage, would the public believe them? politicians do not have a very good track record at following up with the claims and promises that they make.

There is the odd voice in the wilderness pleading with politicians to come clean and give us the truth. Nonetheless I I cannot share your optimism. Thus far we have only been presented with what can be seen as relatively painless options. Everybody seems frightened of the J- word ignoring the fact that the private sector wages war on costs all the time. Most of the public sector is very labour intensive. Ergo if meaningful cuts are to be made then public sector jobs must go. If public sector jobs are to be preserved then the tax take has to be increased towards the day when we all work for government in effect. There is no magic wand, no master plan, no economic aspirin that's going to take all this away.

If I were selling this to the public I would sell it as an opportunity for a root and branch review of public expenditure over the course of the next Parliament. First we have to decide which of the public services we could do without or with which we could manage with considerably less. Having done that, we have t turn to each and every public employee and ask the question as to whether their employment is necessary. Then we have to act accordingly. The private sector has to undertake such exercises from time to time so why should not the public?

I will illustrate my point solely by reference to the part of the public sector where I have better than average knowledge. In this day and age is it any longer necessary to provide every school child n the country with a subsidised sometimes free hot meal in the middle of the day? It all comes out of the educational budget.

When I entered teaching in 1963 there were two tiers of school inspection at LA and HMI levels. Two or three LA inspectors held responsibility for the inspection of 20-30 schools within a given area. By the time I had left, these two or three had been replaced by an army of general advisers, subject advisers, advisory teachers on secondment, even ancillary advisers covering caretakers, school meals, office staff and so on.

Similarly HM Inspectorate, in the beginning one HMI would visit a school perhaps once a year. Once in a blue moon, say every 5 years, we would get a team visit and 4 or 5 HMIs would spend 2 or 3 days in a school. A full HMI inspection was so rare I never experienced one!

HM Inspectorate of Schools has now gone and has been supplanted by OFSTED. OFSTED began as a joke and ended up as a sick joke. Just look at OFSTED now. .No longer does OFSTED confine its attention to schools and teaching. Nowadays it has extended its scope to include private day nurseries, children's homes and the management of LA social services. Mission creep is a feature of the public service.

Meanwhile inside the school. Once upon a day we had the school secretary who knew absolutely everything. You might upset the head with impunity but nobody not anybody upset the school secretary (or the caretaker) Anyway the day I left we had no fewer than 4. The number of deputy headteachers had blossomed from 2 to 4 We had acquired a number (around 4) teachers assistants. 2 laboratory technicians similarly became 4, 1 caretaker became 2 .

The one thing we never seemed to acquire was higher pupil numbers. At our peak we were bursting at the seams with 1250. By the time I left this had fallen to around 950. BTW we had a roof that had been leaking

25 years to my knowledge under near constant repair. It was patched, patched and re-patched. Surely it could have been replaced several times for the cost of this maintenance if there were somebody empowered to make that decision.

All this would be perfectly understandable if we could claim any improvement in the quality of the product. I'm not sure we can at least not sufficiently to justify all this enlargement.

Remember, education is just one part of the public sector in one small part of the country. There is no reason to suppose that other parts are not similarly afflicted.

Is there £6bn to be found by efficiency savings? More like £60bn and maybe more but don't expect to do it without job losses and wider pain.

I quite agree. However, Labour has lied in it's teeth all along about this and still is. I suspect that the actual state of the economy is far, far worse than they admit to. That being so, we do need a strong government with a strong leader. I think we already have a good alternative in the Conservatives and David Cameron. However, whoever gets the job will inherit a poisoned chalice of such dimensions it has never been seen before! - We cannot succeed if a hung parliament result happens. Todate, the Conservatives are showing themselves highly enthusiastic, full of energy and bright ideas. They also mostly have very good eductaional standards and high IQ. It seems we would be daft entirely to pass them by!

I'm certain that it is.

BWHAHAHAHA! The tories don't know what they stand for nowadays. They'll say anything to con the electorate to vote for them. There's less difference between labour and the tories than ever before.

I think a hung parliament could be one of the better options for us now. It's about the only chance that we will see the reforms that we desperately need.

I haven't heard any bright ideas coming from the tory party.

Ah. A party political post.

The general population are hardly fed the facts.

Who do you think is supplying the credit?

Answer: Chinese.