- Let’s talk about debt.
In May 2010, the. Government owed £1.03 trillion. In March 2019, the Government owed £1.8 trillion. That’s 85% of GDP. If we look at the last century, 85% is a relatively low ratio, especially compared to post-war periods. If we compare it to the last two decades – it’s relatively higher.
Public sector net debt as a proportion of GDP was down under Labour for most of its term. But it then jumped from 36% of GDP in 2007/8 to 65% in 2009/10.
That reflects the impact of the global financial crash and accompanying global recession in 2008. The reduction in economic activity in that period meant less in tax receipts and higher welfare spending – blowing a hole in national finances. The bigger deficits added considerably to the overall debt.
- Size isn’t everything
Looking at the size of the debt alone, as we did in the first post, doesn’t get us very far. Comparing debt to GDP gets us further as it has two big advantages. First, it gives a sense of how debt compares between different sized countries. Second, it gives a sense of how the debt has changes over time as the UK’s economic output has increased.
The debt-to-GDP ratio indicates whether the country is likely to run into economic difficulties. The bigger a country’s GDP, the easier it is for the country to support high government debt.
But looking at the relative size of government debt won’t give you a full picture of its significance.
As an example, the United States has a relatively high debt-to-GDP ratio, compared to other countries (see it in red in graph below). But no-one thinks that the United States government is about to default on its loans—they’re considered one of the safest investments in the world.
As long as people believe that a government will pay the interest on its debts, that it won’t suddenly default on them, and that they’ll be able to sell their ownership of the debt easily when they need to, investors will carry on lending that government money.
While the size of UK debt has continued to increase in the past few years, other factors have meant that it’s actually become cheaper for the UK government to borrow money. So size isn’t everything.
3. A lost decade in Britain
The UK’s infant mortality rate is rising, our life expectancy is falling and
generational progress in the UK seems to be grinding to a halt. Historically, every generation has enjoyed higher living standards than the one before. But for millennials in their 20s and 30s, their incomes are barely any higher than “Gen X-ers” were at the same age.
The country is getting richer but for the past 40 years, half of the UK population has barely shared in the country’s growth. The pie is growing but most people are now getting smaller slices. Look at what’s happened to the gap between executive pay and the rest of employees. Look at the squeeze on wages (longest stagnation since 1800s): We’ve reached a point where the market price of around half of the working population is now too low for them to survive without government assistance (https://99-percent.org/wp-content/uploads/2019/08/99-Core-Fact-Pack.pdf).
4. The average person is poorer today than in 2010.
We can judge economic success by measuring three things: GDP per capita, productivity and wages.
Looking at the UK’s GDP per capita, we are poorer now than we were before the financial crisis.
We can’t blame Conservatives or Labour for the crisis. The bail out was so big, it effectively saved capitalism.
However, in the last 10 years of Conservative and Liberal Democrat governments, we have had no improvement in productivity. Our productivity is the same as it was 14 years ago. This has never happened before. For the much of the 20th century, rising productivity meant rising wages, and a virtuous cycle in which. Everyone was better off. The economy being more productive meant workers benefitted more from a larger expanding pie. Over the past 10 years this has not been happening. Why does it matter? Well, without rising productivity, we will not see pay rises. And if inflation is higher than wage increases, then in real terms, we are getting poorer. UK wage stagnation has no precedent. Inarguably, the average person is poorer today than in 2010.
What is more, under this government, work doesn’t pay. 60% of people in working households are poor. If you are poor, you are more likely to be working. The growth of zero-hour jobs, poor quality jobs, under this government, helps explain our poor productivity. The self-employed have been hit worse. They are 15% of our labour force. 86% of the self-employed are in poverty.
4.1 million children are living in poverty, estimated to be 5.2 million by 2022.
Levels of unsecured debt are rising rapidly. We are resorting to borrowing just to get by – an average of £15,000 (not including mortgage debts)
These figures aren’t what you’d associate with economic success but with complete and utter economic failure.
- So, how are we going to get Britain moving again?
To cut our government debt, and make our economy stronger, we need a government that is either running a surplus or the economy needs to grow.
Currently our economy is growing through consumption via personal debt – an overreliance on household debt and short-term finance. Levels of unsecured personal debt are rising rapidly. We are resorting to borrowing just to get by. And we have a labour market dominated by precarious jobs, low pay; low productivity and skills shortages.
We need to kick-start our economy again and get Britain moving. This will be achieved through making people more productive (and that involves paying them more, so that they can support themselves and their families and so that they have money to spend in the economy. We do that by investing in industry of the future, not just financial services.
Labour is proposing day-to-day-spending is increased by £83bn by 2023-24. 10% more than the Conservatives are planning to spend. We are committed not to increase the deficit, not to borrow for day to day spending, so this will be funded by a 4% increase in taxes, mainly paid for by corporation tax. The UK tax revenue, as a proportion of GDP, is currently well behind other European countries. Yes, we are increasing taxes for 5 in every 100 of income earners in the UK (that’s people earning £80,000 and above), but in doing so, we are introducing a fair system. We will close loopholes and address tax evasion. We are also increasing corporation tax and ensuring that companies do not pass these costs on by introducing structural changes to corporate governance. Employees and consumers will be represented on company boards to ensure that rather than short-term decisions making, (driven by shareholder gain), we move to a stakeholder economy with stabler, long-term decision making and greater employee participation, which will lead to rising productivity. With consumers on their boards, if companies do try to pass the costs on into higher prices, they will be named and shamed and the market will sort them out.
The capital investment we propose is £55 bn, 3% of GDP. All parties have consensus that investment is now necessary. If we are serious about future-proofing ourselves for the climate emergency then of course this will take structural change, kick-started by a significant level of investment.
Bringing our utilities and transport back into public ownership has met with a lot of scare-mongering by the right wing press. However, it already happens successfully in other countries. Open a letter in Norway, take a train in Germany or Switzerland, boil a kettle in Paris or Hamburg … you will have a superior service in a country with a strong element of public ownership. If you’re getting domestic energy supplied by EDF, it’s the same group that powers the Parisian kettles, it’s just that the French government own it, now ours!
Existing shareholders of, for example, the water companies, will be compensated through an exchange of bonds for their shares. This is fiscally neutral according to international accounting standards, and is how most nationalisations have happened in the past. There will be no cost to the taxpayer. The public sector would then own profit-generating assets so, instead of being used to pay out excessive private dividends, profits would be used to make more modest interest payments to the bondholders, leaving more money available to be reinvested to bring down bills and improve services. The public will own a profitable company – the profits will more than cover costs over time and, crucially, won’t get siphoned off into shareholders’ pocket. Why should the billionaire Richard Branson benefit from running a train company at our expense? It’s not right. What we’re doing is not only necessary, it’s what people want.
- Moving to investment-led growth
The amounts are large, but not out of line with other EU countries, and the figures are large because they are making up for a backdrop of neglect of this country’s infrastructure, services and people. The volume of expenditure is big because the challenges we face are big. Climate change, a decade of austerity. The running down our public services.
Labour’s plans are designed and costed to move from consumer-led to investment-led growth. We will borrow only to invest and now we have the cheapest interest rates in history so there is a political consensus that it’s a good time to borrow.
Fears about flight of capital are also something that comes up. There is no discussion of capital controls. The pound will start going up when people see the scale of investment proposed. We’ve talked with pension fund and other global investors and they are desperate for investment opportunities. Private sector money will flow into the UK when we signal to the world’s markets that we have a 10-year programme of investment, which gives them stability of decision making.
But borrowing needs to be used wisely. In investments that save public money in the future, such as bringing utilities and transport back into our ownership, while tackling key problems such as the climate emergency.
At the moment, we are a consumer-led society, in debt and not able to sustain ourselves. We need to move to an investment-led society if we are going to get Britain moving again. Vote Labour on 12 December.
If you want an MP that promotes investment in our local communities and public services, that addresses the fact that working people cannot earn enough to support themselves and their families, and acts urgently on climate change by creating a world-leading green and more productive economy then vote Labour on 12 December.
Dr Gerry Mitchell