Since the start of the financial crisis, industrial country public debt levels have increased dramatically. And they are set to continue rising for the foreseeable future. A number of countries face the prospect of large and rising future costs related to the ageing of their populations. In this paper, we examine what current fiscal policy and expected future age- related spending imply for the path of debt/GDP ratios over the next several decades. Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability.
The charts in the report speak for themselves. For example:
Click to enlarge
The projected impact on our debt servicing costs is staggering: by 2040, we would be paying over a quarter of GDP in interest. That would be grave news for everyone. It’s time for change.
NB: The author is Tim Hewish, who I am glad to welcome as a contributor. — Steve
We are drowning in an ocean of debt. The video above may be an American example, but it serves us well when highlighting the dire straits the British economy is in under this Labour Government.
Government isn’t any different from the average person – in that it shouldn’t act in a fiscally irresponsible manner. If you or I were to go into debt, there would be pressure heaped on us to pay back that money and we certainly couldn’t print our own ‘new’ money and call it quits.
The current Government thinks it can get away with doing simply that. By piling up huge piles of debt and flooding the economy with printed money we don’t have (Quantitative Easing) we are perilously close to a debt deficit mirroring the Greek state, which is in a State of Emergency. Dan Hannan MEP also underlines the level of the problem:
Gordon Brown will borrow more in the next two years than in the whole history of our national debt, since it was instituted in 1693.
In short, a Government must live within its means.
Labour also need to understand that Governments don’t possess money themselves. What they do have is access to tax payers’ money now and in future, so when they decide to raise taxes it shouldn’t be to service their level of debt.
I am in full agreement with Policy Exchange’s report titled: Controlling Spending and Government Deficits, which examines how Britain might best rid itself of its astronomical debt. Andrew Lilico, Policy Exchange’s Chief Economist, says:
We found that a number of countries which cut their deficits benefited from lower long term interest rates and higher confidence, leading to faster growth as a result. However, it is important that most of the deficit reduction effort should come from spending cuts not tax rises. We found that countries which tried to fix their finances mostly with tax rises have tended to fail.
This is also closely allied to the idea that Britain needs to get back to being a nation of savers. As David Cameron has stated on a number of occasions we need a culture of personal responsibility and what better place to start than being economically and fiscally responsible in your everyday transactions.
This is something Labour does not grasp in public policy, take for example, the recent revelation about their secret plan for a 10% ‘death tax’, as Mark Wallace of the Taxpayers’ Alliance said:
It is totally unfair to punish people for doing the right thing and saving up all their lives, when they are taxed on earning and saving the money in the first place.
In effect what Labour is doing is encouraging a reckless spending culture. This does not teach responsibility and if a Government can’t take a lead and act responsibility then they are not fit to govern.
On Tuesday, I spoke at the IEA’s The State of the Economy conference, participating in a panel discussion on Fiscal Policy and Government Expenditure with Edmund Conway, Sir John Bourn, Graeme Leach and Danny Alexander MP.
