AS of late, there has been much talk of spending increases from both sides of the political divide.
On one hand we have the Conservatives, who have notably promised a much needed £20 billion a year cash injection into the NHS by 2023, whilst the ailing Theresa May has announced a so-called ‘end to austerity’, in a bid to swell her support among a sceptical public becoming increasingly demoralised by her weak leadership in Brexit negotiations.
In the other corner we have Labour, seemingly with access to the much vaunted ‘magic money tree’ given their many spending promises such as wiping out student debt and a massive swathe of nationalisation of key industries worth £176 billion, should Jeremy Corbyn attain power.
To many, such increases in public expenditure seem appealing. An extra £20 billion for the NHS sounds like a swell idea and wouldn’t it be lovely if anyone and everyone could go to university for free? However, I hate to be the bearer of bad news but if we are to have these goodies then where is the money coming from? Theresa May says that any spending increases will come partly from the ‘Brexit Dividend’ resulting from the British taxpayer no longer having to pay the EU billions of pounds a year once we leave (if we ever do), alongside various tax hikes, and maybe, just maybe, more borrowing.
Labour seeks to increase borrowing to unimaginable levels, whilst taxing the public to the hilt and crippling the economy for their utopian fantasy. Both parties seem to be forgetting a slight problem the UK currently has and has maintained for nearly two decades. The deficit.
The current account deficit stood at £40 billion (2% GDP) for the financial year of 2017/2018, whilst our national debt totals £1,763.8 billion (85.8% GDP). How, one might ask, can the political establishment contemplate raising spending given our present levels of borrowing? Whilst it is true that increasing borrowing can help a nation’s economy reach new heights, as demonstrated through President Trump’s excellent use of tax cuts which has led the USA to record astronomical levels of economic growth not seen since before the financial crisis.
Although, more often than not, excess debt is a poison for a nation’s economy. We need to look no further than Greece for an example of a country that gorged itself on borrowing, and is now paying the price with a debt of 180% GDP, an unemployment rate of 20%, and deep cuts to public services far more vicious and affecting than the UK’s current levels of austerity.
Recently, Italy’s ruling coalition government has announced massive borrowing hikes, increasing the deficit from an expected 0.8% of GDP for the financial year ending 2019 to an expected 2.4% GDP for several years after.
The announcement sent shocks throughout the Italian economy, decreasing European shares prices, driving up government bond prices and wounding the Euro currency.
The markets fear the creation of a ‘doom loop’ (low economic growth plus high borrowing). Such an outcome could be expected in the British economy should our politicians follow suit and raise our deficit. Thankfully, we as the general public currently have only the abject incompetence of Theresa May’s policies to contend with, and not the economic suicide proposed by Jeremy Corbyn and John McDonnell, whose disastrous policies would see a ‘run on the pound’ and skyrocketing national debt, although our situation could change should these radicals attain power in the next general election.
It would be truly irresponsible and immoral of our government to drastically increase borrowing which would lumber the public with a weaker economy and force future generations to repay loans of which they had no part in and saw no benefit. This would also lead to lower living standards and higher taxes for us all.
The only logical solution is to slowly decrease our borrowing and pay down our debts as we have done since the Conservatives first took power in 2010. In March, Chancellor of the Exchequer Philip Hammond stated that “there is light at the end of the tunnel” for the British economy, but in my view, only if we stay the path of fiscal prudence that has served us well in the past and will do so in the future.