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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
