If you think the UK is out of trouble, think again.
This week, while everyone else’s attention was diverted by the ongoing saga of Europe’s meltdown, Chinese rating agency Dagong Global Credit Rating Co downgraded our sovereign debt to A+ with a negative outlook, thanks to our “deteriorating ability to repay debt”.
It also forecast that our economy will grow by between 1.3% and 1.5% over the next two years, and noted that while “the UK government has adopted measures and policies to actively cut fiscal expenditures… its effect is offset by the complicated social problems, continuous high inflation and relatively low economic growth” – low economic growth that would stunt tax revenues and mean that the government overshoots its deficit reduction targets. That seems like a pretty fair assessment.
Economists generally dismissed the downgrade: “obviously this is not one of the main rating agencies that markets pay attention to,” said one at Standard Chartered. But whether the market is paying attention or not, the fact remains that UK debt is a big deal, and one that isn’t going away unless we do something pretty radical.
It is hard to see exactly what that thing is. We haven’t been much good at austerity. As the debt numbers out this week showed, spending is still rising and so is the deficit: April 2011 was the worst on record for public sector net borrowing.
And even as we all talk about how we need to cut public costs, we still have people such as Hank Roberts on the taxpayer payroll. Hank, according to blogger Guido Fawkes, costs Copeland School in Brent over £50,000 a year, thanks to the fact that they are forced to finance his union activities (he is technically a geography teacher but he doesn’t appear to do much of that).
Ask anyone and they’ll all have their own example of public sector waste. My own most recent one? A friend in the public sector has been on a course on how to use Twitter – along with all his colleagues. He doesn’t use Twitter, doesn’t need to use Twitter and doesn’t intend to use Twitter.
I use Twitter. My course consisted of our publisher sending me an email telling me how to open an account. I suspect our way was cheaper.
But if we can’t get rid of our debt the obvious way (spending less) how can we get rid of it? The answer might well turn out to be to use the same method we used to get rid of our post-war debt (which was of a similar magnitude relative to GDP as our current debt) – “financial repression”. See this week’s mag for exactly how this might work. (If you’re not already a subscriber, subscribe to MoneyWeek magazine.)