I’ve lost count of the number of times I’ve heard “Reducing the deficit is the number one priority”. I’m all for cutting waste and inefficiency – I see enough of it in the day job – but the cuts announced by George Osborne and his human shield David Laws earlier this week are about anything but waste and inefficiency. Cuts which mean that people are put out of work, that fewer students go to university, that children will no longer have a better financial start in life are not about waste and inefficiency.
But how much of a problem is our deficit? How much debt are we in? Well, actually, it’s not as bad as it appears, and it hit home when I saw this on the BBC website earlier today. Yes, our debt level looks pretty bad, at 68.1% of GDP, but whats that? Germany at 73.2% and France at 77.6% Italy and Greece seem the real basket cases at 115% each. We’re comparable with Austria (66.5%), and you don’t hear about the crisis which the Austrian Government is dropping everything to resolve.
Ahh, say the doomsayers, it’s the deficit this year which is unsustainable! We’re at 11.5%, and Germany only has 3.3%! Well, the answer to that is in the previous paragraph – Germany can’t afford it, and the reason they can’t afford it is that they don’t have the traditional tools to use in this recession – they can’t devalue their currency. But we can – in fact a falling pound is likely to be the best solution to our issues – stimulating manufacturing exports and creating jobs, as long as inflation is kept under control. So the deficit isn’t the big problem that it is painted to be. “But what about the markets?” I hear you cry. Well, I don’t hold with that much – the worst they can do is to short our currency and as I said that’s the best thing which could happen to us at the moment – not the worst. Plus the idea of “Do what we want or our mates in the City will destroy your economy” strikes me as bully boy tactics of the worst sort. I’ve never liked those sort of bullies, and it isn’t a nice sight in a cabinet minister.
The other phrase which has cropped up recently is the comparison of the nations finances with the household budget. Well, quite frankly, that’s a load of rubbish! Most households have a LOT more debt in proportion to their income compared to the nation – after all, how many people do you know who have a mortgage of 68% of their income? It certainly won’t buy any properties around here on my salary – it would be barely enough to buy a new car on mine! When times are tough, a household cuts down on unnecessary expenditure, but not on things which will create wealth in the long-term, like university places, or getting long-term unemployed youngsters off the dole. Thats like a household cutting out food, and thinking that it can go without any for a little while. What these things are like – and the Child Trust Fund especially so – is like a household using money to improve the house, replacing the windows, which will reduce fuel bills in the short-term and add value in the long-term.
Now I don’t think for one minute that the conservatives are really stupid enough to confuse investment with revenue expenditure, which of course means that the reason they’re doing it is even worse. They’re doing it because they like doing it. And they don’t care.