There are still commentators who find it difficult to distinguish debt from deficit. The UK government itself sometimes says it has “paid down a quarter of the deficit”. Whilst this phrase does not say they have paid off any debt, it can mislead the unwary into thinking maybe they have. Polling shows that many think there have been big spending cuts in the UK and that the debt is now falling.
The truth as many readers here will know is all too different. The UK is still running a deficit of over £100 billion a year. Current public spending has been increased by this government. That means that the UK state is still adding to our debts by more than £100 billion again this year, or by nearly £1700 for every man, woman and child in the country. Meanwhile total state debt exceeds £1000 billion, excluding the state banks’ debts, PFI, PPP and various pension items. That’s nearly £17000 per person of debt already racked up.
All these debts have to be repaid one day. This generation is building up debt to live beyond our means, in the hope that our children will come along and be able to pay it back, or be able to refinance it at sensible interest rates.
So far the Coalition has cut the deficit, which means they have cut the rate at which the debts increase, by around one quarter. Recent figures imply some backsliding even on this modest improvement. If all goes according to plan this Parliament they will add around £600 billion to our state debt, or almost £10,000 extra borrowing for every man woman and child in the UK. The increase in the debt this Parliament will be more than the total official state debt ten years ago.
In summary, the UK state has a large mortgage, its big inherited debts, and is still running up ever bigger bills. Living so much beyond its means requires it to keep increasing the mortgage. The only good news is the last two years have seen a bit less added to the total debt than in 2009-2010.
There are some who seem to think increasing the debt like this is essential to growth. They have to answer why there have been two recessions at periods of very high borrowing. They may well say the borrowing goes up owing to the recession, but that still does not explain why such huge rises in debt failed to get the economy going again. They also need to answer why past recoveries have begun with reductions in planned or actual public sepnding to bring the deficit down as part of the recovery plan.