The annual UK budget deficit is coming down, yet the national debt is rising as a result of low export levels relative to imports and £50 billion of interest to be paid on existing debt. In December 2015, Public sector debt was over £1.5 billion, equivalent to 81% of GDP (ONS public sector finances). This debt to GDP ratio is not exceptional, and compares favourably with other countries – Japan 226%, Italy 133%; Belgium 102%; Spain 93%; France 93%; Canada 86%; United States 72% (based on 2013 OECD statistics). In post-war 1949, UK debt was over 200% of GDP.
As much as UK Public sector debt as a percentage of GDP is not comparatively excessive, neither is UK spending on ‘public social support‘ (benefits of all type). ‘In 2014, OECD countries devote more than one-fifth of their economic resources to public social support. Public social spending-to-GDP ratios are highest at over 30% of GDP in Denmark, Belgium, Finland and France (highest at almost 32% of GDP), with Italy, Austria, Sweden, Spain and Germany also devoting more than a quarter of their GDP to public social spending. Public social spending is worth 22% of GDP on average across the OECD’. (UK spending on ‘public social support’ met this average).
In an economic downturn, social spending-to-GDP ratios usually increase as public spending goes up to address greater need for social support, while simultaneously economic growth falters (GDP as in the denominator).
However, while in most countries social spending has not fallen much in recent years, in some OECD countries there has been a significant decline since spending peaked in 2009. Since then spending-to-GDP ratios declined by 1.5 to 2.5 percentage points in Canada, Germany, Hungary, Iceland, Ireland, and the United Kingdom.
The share of cash benefits paid to household in the bottom income exceeds 25% of all cash benefits in the United Kingdom, Canada, the Netherlands and is highest in Norway and Australia at 40%, compared to around 10% in Mediterranean countries and 5% in Turkey’. (See OECD (2014), “Social Expenditure Update – Social spending is falling in some countries, but in many others it remains at historically high levels”. Insights from the OECD Social Expenditure database (SOCX), November 2014).
The OECD report shows that the UK:
Is not exceptionally burdened with public debt.
Spends significantly less in percentage terms on benefits of all type than other major European countries.
Continues to reduce spending on benefits of all type, but particularly benefits paid to the poor.
This policy is doctrine not economics, because the government is not against debt per se, as it actively encourages individuals to become indebted. The government extolls the virtues of a country living within its means, but does not apply this doctrine to its citizens. This double standard is easily explained. UK manufacturing has received very little assistance from the government relative to other countries, and its output gradually declines, meaning that the ‘financial sector’ is relied upon to make up for the shortfall between what the UK produces and what it imports. The main method by which the casino bankers of London make ‘money’ is to package up individual debt into ‘betting chips’, which can be gambled on whether interest rates or the price of coffee beans go up or down.
There was a £19.7bn increase in unsecured, personal borrowing in 2014:
£9.1bn came from student borrowing, PwC estimates that graduates who started university after 2012 could leave with an average debt of £40,000-£50,000.
£4.2bn came from credit cards. Total outstanding credit card debt saw rapid growth in 2014, rising above £60bn for the first time since 2011.
£6.4bn came from other sources, for example personal loans and overdrafts.
Average UK household set to owe £10,000 in unsecured debt by the end of 2016.
Private debts of more than four times our GDP.
Total household debt (including secured debt) to income ratio is projected to reach around 172% by 2020 – exceeding its previous peak in the run up to the financial crisis of 2008.
The households with the increased debt are not, in many cases, the households with the more valuable assets.
The high level of personal debt will not bring about wholesale economic collapse. There is a certain amount of slack in the system, with better off households being more able to ‘pull their stomach in’ if interest rates rise. As ever, it is the relatively poor who have overstretched themselves, with government assistance and encouragement, who will default on their mortgages as (inevitably) interest rates rise.
However, the greater danger to the economy comes from what bankers have gambled on in the international casino. They have placed a lot of bets on the oil and gas industry, a sector with combined debts of $3 trillion, according to the Bank of International Settlements. As a result of falling oil prices, this sector is set to see a flood of corporate bankruptcies. Their loans are turning bad. Similarly, the vast sums loaned to Chinese companies are looking less than secure as their economy slows down.
It is 2008 again, without enough bail-out water to throw on the fire.
Growth in the UK economy is mostly illusory, the result of people taking on more debt to buy more things. It’s a ‘for now’ gambit, as whole generations of ex students, still living with their asset rich parents, will not be the debt guzzlers of the future, but, instead, will see their parent’s asset stripped to meet care costs, leaving them roofless.
Aspiration, for many, is just another description of the ball and chain of debt.
And, as the debt orgy continues, you are lied to about the seriousness of UK Public sector debt. The lie is an excuse for privatising all publically owned assets, rather like telling someone they must swallow a nasty medecine when they are not that ill.
Spit it back at them.
lenin nightingale 2016