New PM must use Greece as cover to cut the deficit now

Britain's deficit must be cut. Whoever becomes PM should use Greece as an excuse to rip up their party's manifesto commitment and get on with wielding the axe.

I went on Moneybox Live on Saturday morning(you can listen to the show here). The conversation was, as one would have expected, all about the impact of the hung parliament on markets. Just how big a deal is it? I went in under the impression that not only is it a whoppingly big deal, but that everyone understood that.

Not so. The other two guests seemed to think that as long as sometime this week there was a "clear plan" for cutting the deficit, all would be well. They didn't even think said plan needed to show the cuts biting now. No, as long as said plan showed things getting going next year, that would be enough.

I don't buy this. Not for a second.

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Let's look, just once more, at the basic facts. The UK has a declared national debt of £750bn. That's ludicrously large. But right now the point is not even the size of the debt. It is the size it will become. Politicians never mention the debt. Instead they talk endlessly of cutting the deficit. But the deficit is just the amount we add to our debt every year: unless we cut it to zero, we increase our national debt every year.

And how. As Liam Halligan points out in The Sunday Telegraph, even if somebody somehow were able to "halve the deficit" over the next four years (Gordon Brown's plan) our national debt would still skyrocket to £1,500bn. That is, as Halligan puts it, a debt run up that is "uniquely fast" among the world's major ecomomies.

So "let no politician tell you that the UK isn't Portugal and isn't Greece." We are accumulating debt faster than anyone else and we are doing it against a background of semi-recession and a weak currency. It really is about as nasty as it can be.

But there are two things that could help our politicians sort all this stuff out. The hung parliament and Greece. Why? Because they provide cover.

A Conservative-Liberal coalition can use Greece as cover to rip up both their manifestos. The last few weeks, they can say, have added urgency to everything and shown what happens if you don't cut spending drastically before the market makes you.

Then they can use the hung parliament as cover for disposing of each other's scared cows ("I didn't want to cut spending on the NHS, but Nick said I had to..." "I didn't want to give up the tax cuts but Dave said I had to").

We've written a lot in MoneyWeek about how spending can be cut perhaps Geddes Axe style or Canadian style. So there is really no shortage of examples for Clegg and Cameron both of whom are reasonable men who do so far appear to have national interest at heart to follow.

They'd better get on with it. The new deal in Europe has given the FTSE a super reprieve this morning. But if we don't have a government prepared and able to get down to work pretty soon, that won't last. The markets are watching us.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.