The burden of debts

If you look at the total burden of debt in any given country you need to look at the borrowings of the state, of private individuals and of private sector companies. Inspection of total debt figures reveals that Euroland is considerably more indebted as a proportion of its income than the USA.(450% versus 300%). Japan is more indebted than either (600%). Ireland leads the list of highly indebted countries. (1000% GDP). Smaller countries with large banking sectors like Switzerland also tend to have apparently high leverage, as the bank balance sheets have a big impact on the national figures. The UK is more in line with Euroland, but has a better growth rate and a larger financial sector to assist paying and to explain the figures.

Household debt in the UK is below the levels (relative to size) of Denmark, the Netherlands, Switzerland, Ireland and Portugal, but higher than other European countries. Overall private sector debt in 2011 according to OECD figures in the UK was similar to that in the US at around 200% of GDP, well below the levels of the Netherlands, Japan, Portugal, Belgium, Ireland and Spain.

Japan emerges as a highly borrowed country in both its public and private sectors. However, it has very little external debt which is always more problematic to service and repay than local debt. It also now owns a great deal of its own state debt following endless QE programmes, which makes it even easier to service, and enjoys very low interest rates. It means its high indebtedness has not been a problem and seems unlikely to become one anytime soon.

The high debt levels in some Euro countries is more of an issue. Under the rules of the Euro so far they cannot print money to buy back their own state debts. Tougher ECB control of their commercial banks also means they have to rein in private borrowing through the banking system. It is interesting that neither of these rules has resulted in a more lightly borrowed Euro area than the USA, for example. It shows how a lack of growth makes stabilising and reducing debt so much more difficult.

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77 Comments

  1. Gary
    Posted January 13, 2015 at 5:44 am | Permalink

    it’s not the EU vs the rest, it is the entire West that is hopelessly broke. These debts are unpayable. Hence the war drums ?

    btw. an example of the moral bankruptcy of our “leaders”. A photo op, false “march” in Paris. And they wonder why people view them in utter contempt?

    http://www.independent.co.uk/news/world/europe/paris-march-tv-wide-shots-reveal-a-different-perspective-on-world-leaders-at-largest-demonstration-in-frances-history-9972895.html

    • Sandra Cox
      Posted January 13, 2015 at 8:43 am | Permalink

      My concern is that the EU’s puppets in our government, in collaboration with their boss in Berlin, will exploit this latest incident – and the threat of more to come – as an excuse to move even more quickly to complete the EU Project, taking the UK with it under the premise that only central EU government can combat the threat from terrorism!

      • Denis Cooper
        Posted January 13, 2015 at 12:18 pm | Permalink

        https://euobserver.com/justice/127161

        “Debate intensifies on stuck EU counter-terrorism bill”

        “The European commission has said it will “put all its weight behind these negotiations” and reiterated its plan to present a raft of new counter-terrorism measures as part of a larger new internal security strategy.

        British conservative Timothy Kirkhope is the parliament’s lead negotiator. He is also one of its primary backers and is pushing to get his fellow MEPs to endorse it.

        “We must put in place our own EU rules and standards … as soon as possible,” he said in November.”

        • Sandra Cox
          Posted January 14, 2015 at 11:38 am | Permalink

          Just a few titbits from other sources:

          Apparently, in 1996 and as recently as 18 months ago, from the pen of freedom-loving Charlie Hebdo:

          “We ask you to dissolve the Front National, this league whose political aim is to bring about the end of the Republic,” said the Charlie Hebdo petition to François Hollande and Manuel Valls.

          So, Charlie says that Front National, a party that came first in the recent European elections in France, with 4.7 million votes and 24 seats in the European parliament, should be forcibly dissolved.

          So is this the reason politicians have been falling over themselves to quote the slogan? Charlie Hebdo – a useful front for showing that freedom of speech is alive and well, as long as it is serving the Leftist agenda of the European elite?

          Is this satire, or just another French farce, or what?

          • Denis Cooper
            Posted January 15, 2015 at 1:26 pm | Permalink

            Of course we don’t know whether Cameron understood this before he decided to publicly align himself with the editors of the magazine by joining in with the “Je suis Charlie” chorus, just as we don’t know whether he understood that calling for the EU to extend to the Urals was equivalent to calling for Russia to be split up.

          • Sandra Cox
            Posted January 16, 2015 at 11:30 am | Permalink

            Reply to Denis Cooper’s:

            “Of course we don’t know whether Cameron understood this before he decided to publicly align himself with the editors of the magazine by joining in with the “Je suis Charlie” chorus, just as we don’t know whether he understood that calling for the EU to extend to the Urals was equivalent to calling for Russia to be split up.”

            Hi Denis, a telling quote from Hilary Mantel’s Wolf Hall:

            “When no one else could see, he could see: and that is what it means to be a king.”

      • Hope
        Posted January 13, 2015 at 7:34 pm | Permalink

        I note from the papers Erdogan, Turkish PM, blames the West for the Paris incident. This is the same person who Cameron wants to join the EU!! Cameron really is wrong on every judgment. Anyone trust Erdogan not to let Muslim extremists use his country to enter Syria?

    • oldtimer
      Posted January 13, 2015 at 10:43 am | Permalink

      Re your picture link. How very revealing! The spin unspun. Many of those same leaders do not have an unblemished record when it comes to press freedom.

    • No Longer Anonymous
      Posted January 13, 2015 at 2:56 pm | Permalink

      It sullied an otherwise innocent march.

      Some of those causing the greatest danger to free speech and unity were those in the front row.

      • Lifelogic
        Posted January 14, 2015 at 6:20 pm | Permalink

        Indeed the attack on free speech come from politicians and misguided laws as much as from terrorists.

    • zorro
      Posted January 13, 2015 at 8:06 pm | Permalink

      They certainly seem to be jumping up to demand extra surveillance powers for the security services, or MI5 are saying that they cannot guarantee protection for us (not that they ever could) even with extra money…….

      I think that the point is that extra money wouldn’t matter because the security services seem (if we are to believe events happened as portrayed) to have known plenty about the alleged suspects in Paris and the alleged 7/7 bombers and others since then including those convicted of the Woolwich incident….

      The security services had plenty of information about these people and had them under surveillance, so why will any more money help if, even when they have information, they cannot prevent these events?

      zorro

      • Hope
        Posted January 14, 2015 at 8:33 am | Permalink

        The head of security services gave evidence to Chilcott that she addicted Blaire home grown terrorism would increase. He is such a star! Guido informs us today that Cameron’s latest snooping power creep puts us on par with China and Russia etc. Wrong judgment once more.

        • Lifelogic
          Posted January 14, 2015 at 6:21 pm | Permalink

          Indeed the reliably wrong compass out by 180 degrees on most issues.

    • bluedog
      Posted January 13, 2015 at 9:40 pm | Permalink

      ‘…it is the entire West that is hopelessly broke. These debts are unpayable.’

      Not so. A nation is a perpetual going concern and as such the break-up value of the ‘business’ is irrelevant. If you want to lose money as a foreign bond-holder, start a war and your foreign bond-holdings can be written down to zero, the ultimate hair-cut. You then have the option of invading and occupying the debtor nation in order to enforce reparations. See Treaty of Versailles 1919.

      • Gary
        Posted January 14, 2015 at 9:18 am | Permalink

        “Not so. A nation is a perpetual going concern and as such the break-up value of the ‘business’ is irrelevant. ”

        More MMT/Neo-Keynsian myths. The market signals that a nation cannot honour its debts, because its productive capacity cannot ever meet the debt obligations under any practical circumstances, by devaluing the currency to zero ie the currency is outright rejected and dies.

        If debt has no consequence for a nation, because a nation can merely create infinite amounts of its own currency, then Zimbabwe would be the richest nation on earth.

        MMT and Neo-Keynsians are advocating perpetual motion and should be disdained accordingly..

        • bluedog
          Posted January 14, 2015 at 8:44 pm | Permalink

          A nation’s debt is self-limited by the cost of debt service. Balance sheet considerations do not apply in a practical sense because a mortgagor in possession cannot liquidate the assets unless there is an army of occupation acting on behalf of the mortgagor. Trying occupying a nuclear weapons power. This not MMT (wot’s that?) or neo-anything but a fact of life.

          I would discount any sub-Saharan nation as a valid example. The UK is not grossly irresponsible, incompetent and corrupt, the underlying assumption in your post.

  2. Lifelogic
    Posted January 13, 2015 at 6:47 am | Permalink

    Indeed a lack of growth makes stabilising and reducing debt so much more difficult. So why not have some policies that actually promote growth?

    We need easy hire and fire, selective immigration, cheaper energy, fewer regulations, lower taxes rather than endless tax increases, relaxed planning regulations, relaxed building regulations, a far smaller state sector that pisses far less down the drain, no green crap wind and PV subsidies, no HS2, no counter productive wars, far better education systems that actually produce what is needed by industry, far lighter patent law restrictions, far, far less EU, a health system that actually works and does not kill so many, some restoration of moral hazard, real deterrents to reduce the crime rates, fewer state payments to encourage people not to work and far simpler and lower taxes.

    In short why not get the government out of the way stop them mugging and inconveniencing the productive all the time and lets have some real growth?

    The above could transform the growth rate and give a huge confidence boost to. Confidence is also needed and Labour or some dreadful rainbow coalition hardly inspires confidence. Cameron’s pro EU wet socialism hardly does so either, even if it is a tiny smidgeon better than Labour.

    Cameron’s list six themes/priorities for the election show he has totally missed the point as usual they are: creating jobs, lowering taxes, abolishing IHT, improving education, tackling housing shortages and helping the retired.

    He misses out dealing with the very poor and deteriorating UK health system, the need for a fair democratic deal for England, the need for far less EU, the need to reducing the size of the largely parasitic and incompetent state very considerably, the need for cheaper & non religious energy and the need to be far more sensibly selective on immigration.

    At least he did not say vote blue get greencrap this time.

    He threw the last election by his pre election, cast iron, EU ratting, allowing Clegg on TV, his green crap and this generally wet soft socialist approach. Yet he seems very keen to repeat his mistakes but why? Polls show the country is crying out for property efficient Tory/Ukip government to get the economy going again they do not want Miliband/Balls the voice of the state sector unions, and his economy destroying Hollande like approach.

    • Lifelogic
      Posted January 13, 2015 at 8:51 am | Permalink

      So are we going to get a Cameron in a Lib/Lab/Con verses Farage debate or is Cameron too frit (due to his lack of a defensible position on most issues, his serial ratting and his dreadful record so far).

      A cardboard cut out of him might not look to good to the electorate?
      He surely must appear and just largely agree with Farage & the nutters and closet racists as he call them. The problem is this reverses his position of most issues as he needs to. The EU, the green crap, selective immigration, over regulation, employment laws, over high and over complex taxes, the size of the state sector, IHT and grammar schools just for a start.

      • zorro
        Posted January 14, 2015 at 6:57 pm | Permalink

        Lifelogic, the advantage of a cardboard cutout Cameron is that it would not be able to say anything silly or unbelievable at the next election it could just soak up the damage and pretend to be aloof from the debate. It may actually win kudos and gain more votes, but I shouldn’t give the current Conservative Party too many ideas…..

        zorro

    • Lifelogic
      Posted January 13, 2015 at 9:50 am | Permalink

      I see that the IFS has said that families with two children and a combined income of £54K are £6000 worse of due to the changes to tax and removal of their child benefit by Cameron/Osborne.

      So much for “hard working families” and I am “at heart a low tax conservative”. This is a huge cut in their disposable income. Making them often little or no better off (after the many cost of working, travel etc.) than a similar family on benefits, receiving housing benefit and with all the time in the World – why bother say so many, hence the poor tax receipts?

      • Lifelogic
        Posted January 13, 2015 at 11:57 am | Permalink

        The £54K is also their gross income, so net income after tax, NI, pensions and travel to and from work for two and perhaps some part time child care might only be more like £26K for housing & living on. The £6K loss is a huge attack on “hard working families” by the Tories.

      • No Longer Anonymous
        Posted January 13, 2015 at 2:59 pm | Permalink

        Not only that:

        Means tested pension, means tested old age care, no grants for university, no help with housing (unless you include HTB – a property ramping scheme)

        The middle classes are a lot worse off than 6k a year.

      • Narrow Shoulders
        Posted January 13, 2015 at 7:21 pm | Permalink

        To treat families earning 54K so is OK because they are rich.

        Families with a single earner are even worse off through losing tax breaks on personal allowances and child care.

        Still 36K take home is available on universal credit to Big Issue sellers from Europe

      • zorro
        Posted January 13, 2015 at 8:10 pm | Permalink

        Exactly….makes no sense to work for some under the current system, and the others will soon learn. Growth predicated on buying up your own credit through the magic money tree. You are obviously in the wrong trade lifelogic … 😉

        zorr

        • Lifelogic
          Posted January 14, 2015 at 6:27 pm | Permalink

          Indeed the boom trades seem to be the ones that produce nothing of much value. Bureaucrats, politics, lawyers, accountants, H&S experts, motorist muggers, HS train experts, HR law experts, litigation experts and tax experts.

      • Bazman
        Posted January 13, 2015 at 10:24 pm | Permalink

        A combined income of 54K is £27k each right? No it is £54k each and that is £108K. At least last time I added it up as a mathematician of some expertise in the 1’s 10’s and 100’s area. You cannot even read accurately.
        http://www.telegraph.co.uk/finance/personalfinance/tax/11341486/Middle-class-hardest-hit-by-benefit-cuts-and-tax-rises.html
        A similar family on benefits, receiving housing benefit and with all the time in the World?
        To gather wood, churn butter and drink cider on their small holdings one presumes?
        As pointed out to you most people in receipt of these benefits work and often long hours at least when they are able to in their zero hours no rights jobs. The benefits subsidise low wages and unemployment is forced on them. The more you lie and ignore the facts the more stupid you look like the Tories when they refuse to talk about the £1600 on average lost by most working people and cheer about a pathetic rise in pay for a few.
        How much did the £150k and above loose? How much did the Noms take for a hit living under the same sky? Get real. Again..!

        • Lifelogic
          Posted January 14, 2015 at 6:41 pm | Permalink

          You are right I misread it, but it is nearly as bad at the lower levels.

        • Edward2
          Posted January 14, 2015 at 7:05 pm | Permalink

          You are obsessed with “zero hours jobs” Baz
          First the average number of hours worked by those on Zero Hours s is over 27 and secondly over 97% of the workforce are not on Zero Hour jobs.
          However Im not in favour of this method of employment.
          If I were an employer, I would not take advantage of this currently legal method of circumnavigating some very complex employment laws.

  3. alan jutson
    Posted January 13, 2015 at 7:33 am | Permalink

    Given your comments today John you almost make it sound acceptable to be in debt !

    I am fully aware that in some cases it may be necessary in the short term to borrow, and certainly understand the case for an affordable mortgage for house purchase, but I think far too many people, businesses and Governments, just think of these things as a never ending loan, which never have to be paid back.

    Gone would seem to be the, save a bit for a rainy day.

    Now the sun needs to shine forever.

    Is this one of the benefits of global warming ?

    We never need to fix the roof .

    • Lifelogic
      Posted January 13, 2015 at 9:00 am | Permalink

      It is perfectly sensible to be in debt if you can borrow cheaply and invest the money in such a way as to produce a rather better return than the interest. That is how much of business creates wealth.

      The problems is getting into debt and just using the money to piss down the drain, as governments nearly always do.

      • Lifelogic
        Posted January 13, 2015 at 9:03 am | Permalink

        As a good example borrowing to buying a car/van/bike so you can get to work and earn some money makes perfect sense. Or borrowing to have a hip or knee operation quickly so you can get back to work earlier.

      • alan jutson
        Posted January 13, 2015 at 10:45 am | Permalink

        Lifelogic

        I agree with your first paragraph, but far too many in my humble opinion are doing as you suggest in your second paragraph, with not a clue as to how or when to pay anything back.

        Eventually you have to earn more than you borrow, go under, win the lottery (poor odds) or find a wealthy friend or relative.

        Same applies to Government, who are an excellent example, as you have outlined

      • Bazman
        Posted January 13, 2015 at 7:56 pm | Permalink

        This of course does not apply to the UK for say to build a power station as the Communist Chinese or Socialist French state owned companies can do it far more better and cheaper than any British state owned company. As well as railways and many other things. It all being the fault of the unions and employments laws? Err! Have a think on that one.
        The NHS not being a useful way of keeping the population healthy as they are able to work in state subsidised jobs for private companies. and are not able to fund their own health care at least not on minimum wage or in your case wanting no minimum wage. 7k a year and paying for health care as well as rent/travel/food/clothes/utilities? Tell us how that works in a logical way? They just quietly die when not useful any more?
        Can you see the points of the above or not Rigsby?

        • Edward2
          Posted January 14, 2015 at 7:09 pm | Permalink

          Dont worry Baz if Mr Milliband gets in all these problems and more will be sorted immediately.

          • Bazman
            Posted January 15, 2015 at 6:07 pm | Permalink

            At least he thinks there is a problem!

      • Narrow Shoulders
        Posted January 13, 2015 at 10:00 pm | Permalink

        “It is perfectly sensible to be in debt if you can borrow cheaply and invest the money in such a way as to produce a rather better return than the interest. That is how much of business creates wealth.”

        Not least the banks who are able to make money out of thin air to lend for vast profit.

  4. Narrow Shoulders
    Posted January 13, 2015 at 7:43 am | Permalink

    Often business finds that the most dangerous time for its survival is a period of growth where it’s cashflow comes under severe pressure as resources are needed to expand but the revenue lines have not fully developed.

    Could it be that the UK expansion of the economy driven by imported citizens has contributed to the undue pressure on UK’s cashflow leading to greater debt from trying to cope.

    An extra 700 million pounds chucked at the NHS to cope with numbers, 7 billion pounds for new school places and this morning the news that we need more or children will have no places.

    An immigrant needs to earn 25 thousand pounds a year at least without accepting any in or out of work benefits in order to cover the annual cost of educating their child at primary school (secondary pupils need an extra 1000 per year [5000 taxed earnings]). How are these people supposedly contributing to the economy as a whole. The whole demographic is taking out not putting in.

    • Bert Young
      Posted January 13, 2015 at 9:26 am | Permalink

      Immigrants are a drag on the economy and the problem should be at the very top of the election programme . The report out today on the extra numbers of children having to assimilated show how close to breaking point schools are . Education is one of the tips of the iceberg and is on the agenda ; NHS and health also . It is interesting that Cameron’s previous focus on immigration has been changed since his admitted telephone call to Angela Merkel and her recent visit to this country ; he has left himself wide open to UKIP on this issue .

      Immigrants who are striving to earn enough are also tempted into the credit card trap to stem the gap . Their efforts are understandable but they should never have been allowed into the country in the first place without the security of a job .

    • oldtimer
      Posted January 13, 2015 at 10:52 am | Permalink

      Much of the “growth” trumpeted by the present government must be accounted for by debt fuelled government spending, all paid for by QE. Perhaps JR can tell us by how much. Take that out of the equation and there can`t be very much “growth” left that was contributed by the private sector.

      Your point about growth causing cash flow pressures is well made. In fact, during recent years corporate balance sheets have been cash rich, reflecting the slow rate of recovery and understandable business caution about what the future holds.

      Reply Most of the growth has been private sector. I have given you the figures in past posts.

    • Denis Cooper
      Posted January 13, 2015 at 12:13 pm | Permalink

      That is pretty much what the latest briefing paper from MigrationWatch, which was released over the Christmas period, claims:

      http://www.migrationwatchuk.org/briefing-paper/1.41

      “Response to UCL paper on the fiscal effects of immigration to the UK”

      “Between 1995 and 2011 the fiscal cost of migrants in the UK was at least £115 billion and possibly as much as £160 billion according to a report from the Centre for Research and Analysis of Migration headed by Professor Christian Dustmann at University College, London. The report found that migrants in the UK were a fiscal cost in every year examined.”

      I don’t think even that is necessarily the whole story, because where it says:

      “In addition, the very large fiscal cost of immigration overall is compounded by the cost of congestion and loss of amenity caused by our rapidly rising population.”

      that should really include the capital cost of expanding all kinds of public facilities just to cope with the expanded population.

      Of course if you have some spare capacity before the population, and therefore demand, expands then you can use that up without the need for significant extra capital spending, the added costs are then only the current costs of providing the services to more people and maintaining existing facilities to do that; but once any spare capacity in the system has been exhausted you are forced into extra capital expenditure as well as extra current expenditure.

    • No Longer Anonymous
      Posted January 13, 2015 at 3:06 pm | Permalink

      NS – And much of that demographic is afforded unacknowledged protection from scrutiny by press (or by satirists) through law or through fear of violence, whereas our own culture can be undermined routinely – The Jerry Springer Opera on BBC is just one example.

    • Lifelogic
      Posted January 14, 2015 at 6:34 pm | Permalink

      Exactly and what about a couple arriving with one working, say four children and four elderly parents arriving with serious health problems. That is three houses needed, NHS cost, four at school perhaps costing the tax payer 120K PA in benefits and just the one worker who might be earning £20K and paying in £3K in NI and income tax at best.

  5. petermartin2001
    Posted January 13, 2015 at 7:46 am | Permalink

    Yes, debt can be a problem in society. But we have to clear that we understand what that is before we start to worry about it too much. Not everyone can be in debt. For everyone who is in debt there is someone else who has an asset. Debts always equal assets to the penny. So when we look at ways of reducing debts we have to remember we are reducing assets too.

    Everyone who has a premium bond or a National savings certificate has an asset because the government has a debt to them. We tend to think that these Government debts are somehow sinful, but that those who hold these assets are virtuous. But, without the sin there could be no virtue!

    • Ted Monbiot
      Posted January 13, 2015 at 9:16 am | Permalink

      Peter,
      Governments have a habit of printing money to excess and this dilutes the value of your assets.

      • Lifelogic
        Posted January 13, 2015 at 11:59 am | Permalink

        Indeed printing money is just another tax in the form of a devaluation of your money.

    • Bert Young
      Posted January 13, 2015 at 9:31 am | Permalink

      Petermartin2001 . All assets are not reclaimable and cause some organisations to go into “administration”.

    • Lifelogic
      Posted January 13, 2015 at 9:52 am | Permalink

      Buying a premium bond is a pretty daft thing to do with your money, but not quite as daft as buying a lottery ticket where the odds are so dreadful.

      Surely people can find something better to do with their money?

      • Roy Grainger
        Posted January 13, 2015 at 12:30 pm | Permalink

        If you are a taxpayer at the highest rate and you buy the maximum £40,000 premium bonds then it is not a daft thing to do at all. The daft thing is to stick it in a “savings” account at my bank which pays 0.05% interest of which you then pay 50% in tax. The government debt binge has been funded by penalising savers.

        • Lifelogic
          Posted January 14, 2015 at 6:38 pm | Permalink

          Average pay out is 1.3% (tax free I admit). But by definition nearly all but the big winners will get far less than this. A net loss in real terms.

      • DaveM
        Posted January 13, 2015 at 3:13 pm | Permalink

        Horses.

    • Denis Cooper
      Posted January 13, 2015 at 11:50 am | Permalink

      Well, it may be true in theory that debts and assets must always be equal, but surely in practice they can get out of kilter? Assets can be ascribed incorrect book values, more often too high than too low, and the assets held by a business may be valued on the basis that it is a going concern, until it is forced to stop trading when its assets may lose much of their book value, and then there is often that old “goodwill” item included on balance sheets.

    • Gary
      Posted January 13, 2015 at 12:10 pm | Permalink

      ah, you have to love the MMT spiel that debt doesn’t matter because on the other side of the ledger is an asset. Double entry chicanery!

      ALL debt is a claim on the proceeds of future production. When the debt is so large that practically no achievable growth of production can ever cover the debt, then those so-called assets are not worth the double entry ledger they are written in.

      This is why I believe that MMT should be correctly labelled charletans.

  6. No Longer Anonymous
    Posted January 13, 2015 at 7:49 am | Permalink

    I see your leader’s omitted mass immigration from his list of manifesto issues already (#1 issue with the public.) Surely THIS causes the biggest increase in cultural instability etc ed ?

    And how can we even talk about economics without mentioning it ?

    (No Longer Anonymous because you’re right. I don’t think I should vote anonymously in a free country.)

    • Lifelogic
      Posted January 13, 2015 at 12:05 pm | Permalink

      Indeed his list of 6 themes is totally out of touch with the public’s mains concerns. Does he ever talk to any. He is aiming at the few floating voters in a few marginals, he is misguided, it does not work like that he needs momentum. He need to follow the Thatcher example not Heath, Major & Brown.

      Start with a promise of an end to IHT on May 8th 2015 if elected on the 7th.
      If you earn money and have paid your taxes the balance is yours to spend invest or give away as you wish to he should say.

  7. Peter A
    Posted January 13, 2015 at 7:56 am | Permalink

    As a society we have moved away from the meritocratic concept where if you want something you save or if you want a better standard of living you work for a promotion.

    Petrol at .99p a litre in Birmingham today. It would’ve been interesting to see how the socialist government in Scotland would have dealt with plummeting oil prices.

  8. stred
    Posted January 13, 2015 at 8:00 am | Permalink

    We stayed up to watch Newsnight last night, as there was a remarkable interview with some courageous Muslims who had been helping security services identify radicalised groups. I hope they receive protection.

    Then Evan started to explain the debt and deficit along with the differences between Labour and Conservative policies. He seemed to think that neither made clear how much was involved and how they would achieve the savings. Then the interview between the two spokesmen. The Conservative started to try to explain that they were different because they would cut back the debt, which would have to be paid by our children, but was interrupted by Evan, who talked across him throughout. Then it was Labour’s turn and he interrupted less and did not interrupt when their expert said something like ‘paying down the deficit’. I decided to go to bed at this point, grumping that you can’t pay down a deficit- you have to reduce it until you can then pay down the debt. The younger voters watching the farce seemed to think I was being unreasonable.

    • Lifelogic
      Posted January 13, 2015 at 9:58 am | Permalink

      True you cannot pay down a deficit just reduce or enlarge it. But the Tories are just as bad. Cameron claimed totally falsely the Tories were “paying down the debt” and the Tories were aiming to be “in the black” by 2008 – by which he meant the deficit would be zero by then (at which point the Tories would (actually taxpayers of course) would actually start paying down the debt.

    • petermartin2001
      Posted January 13, 2015 at 3:17 pm | Permalink

      The Conservative started to try to explain that they were different because they would cut back the debt, which would have to be paid by our children….

      We often hear this line but let’s just think about this. What is it that limits the standard of living of people in 2030 and beyond? It’s the goods and services that our children’s generation can and will produce. Goods and services cannot be sent back in time in order to pay for past spending.

      The future standard of living will be a factor of the number of workers and their productivity, the state of the environment and the natural resources available, not how much debt their government carries from the past. So where does government debt fit in?

      How did the massive postwar government debts impact on the lives of people living in the 1950s and 60s? It didn’t. These are often referred to as the “golden years” where inequality fell and the standard of living rose at a dramatic pace – largely under an enlightened Conservative government! Harold Macmillan was a war hero of WW1. He should be regarded equally as an economic hero too for not making the kind of mistakes that many of his colleagues were urging him to.

      Could the workers in the postwar years send their goods and services back in time to support or pay for the war effort? Of course not, it’s a ludicrous proposition. Harold M understood that. The penny hasn’t dropped with most present day politicians yet. Labour or Tory.

      • Edward2
        Posted January 15, 2015 at 10:00 am | Permalink

        I follow your logic Peter, but our current generation is now paying more than the defence budget each year just in interest on the debt.
        And this is with interest rates at a long term low.
        The next generation will face having to pay interest on a much larger debt and therefore have to pay even more in annual payments.
        We are being irresponsible in passing on a worse situation to the next generation.

  9. David Murfin
    Posted January 13, 2015 at 8:35 am | Permalink

    “they cannot print money to buy back their own state debts. ”
    If I paid off my credit card each month with money I had printed myself, I should be in gaol for fraud and forgery. I’d be keeping the supermarkets busy, though, (and contributing to GDP like gamblers and sex workers?)

  10. agricola
    Posted January 13, 2015 at 8:52 am | Permalink

    You make the case that in some respects the UK is better in the debt stakes than others.
    It does not make me feel any better about the way our economy is run or the legacy it will leave for the next two generations in terms of the national debt at £1.3 Trillion and climbing.

    What really gets up my nose is the denial of 25 cancer alleviating drugs to UK patients while at the same time spending £12 Billion on overseas aid with countries who decades ago should have solved the basic needs of water and health for their own populations. Unless of course it is an off piste way of funding MI6, but I doubt it.

  11. Brian Tomkinson
    Posted January 13, 2015 at 9:15 am | Permalink

    I suppose that since your party has reneged on its promise to eliminate the deficit by 2015 and is continuing to add to the public debt burden, it’s not surprising that you have written about the debt burden and made no mention of the cost and effect of government debt.
    The shear hypocrisy and deceit of your party leader, to whom you offer unflinching support, was transparent when he stated yesterday: “To every mother, father, grandparent, uncle, aunt – I would ask this question. When you look at the children you love, do you want to land them with a legacy of huge debts?” At the last election you were all happy with the poster which depicted a newborn baby under the headline: “Dad’s nose, Mum’s eyes, Gordon Brown’s debts.” Many of us fell for it then but never again.

  12. margaret brandreth-j
    Posted January 13, 2015 at 9:23 am | Permalink

    Not sure about this one. Why is is more problematic for Japan to pay its internal debt off if they can quantitive ease. They are not in the same position as The EU who cannot buy their own debt off?
    I am sorry to see that the UK still has high household debts.

    • petermartin2001
      Posted January 13, 2015 at 8:27 pm | Permalink

      Its only possible to pay off debt by QE is the process of money creation isn’t counted as debt. So, for example, if the BoE creates £100 billion of new currency and buys back £100 billion of government gilts, from whoever owns them, the governments “debt”, or the National Debt, is reduced by £100 billion too. Isn’t that marvellous?

      Does this make any sense? I’d say it doesn’t. But I’m open to suggestions as why I may be wrong in thinking that. But of course QE could still make sense overall -but not as a method of debt reduction.

      The Japanese are not in the same position as the countries of the EU, or rather those of the EZ. They, like the UK, still have control over their own currencies.

  13. English Pensioner
    Posted January 13, 2015 at 9:29 am | Permalink

    To me there is something terribly wrong with the country when the cost of this country’s debt interest payment is more than the cost of our defence budget.
    Politicians (Labour in particular) argue whether we can afford things like Trident, but overall items like this are trivial compared with what we pay in debt interest, and even more trivial in terms of all the debt that we have to repay.
    If politicians want to talk about cuts, they want to talk about cutting our debt, which in turn means not spending so much, not spending a penny which is unnecessary, not having one luxury project. And get rid of the Quangos as we were promised by Cameron; if he can’t even manage to do that, why should I believe he will do far more difficult things?

    • stred
      Posted January 13, 2015 at 3:48 pm | Permalink

      He and Ed are as believable as a bloke in a pub flashing his wallet around and telling everyone which charity he supports every Christmas, while buying a round on his credit card.

  14. BeeCee
    Posted January 13, 2015 at 10:32 am | Permalink

    It is difficult to accept that any of the front bench politicians of the main parties have a grip on economic reallity when we quite happily maintain green policies which not only increase the cost of energy, do nothing to reduce the World’s output of greehouse gasses, but also pay out multi millions of taxpayer funded subsidies to windfarm owners etc ed.

    Or as a rich man said – what debt?

  15. Vanessa
    Posted January 13, 2015 at 10:58 am | Permalink

    If you have a look at the website, Institute for Government, there it tells us that our debt is £2.98 TRILLION. What an indictment of all governments and their incompetence. They spend and spend and spend and spend with no thought to the future of this country. Their hubris that they can steal our children’s and grandchildren’s savings and taxes is criminal.
    When will we get a government which is full of Statesmen who think beyond their own stupid little parties and consider the Country as a whole ?

  16. Denis Cooper
    Posted January 13, 2015 at 11:29 am | Permalink

    I’m always sceptical about worrisome statements about the level of household debt, which may or may not include the very short term debt on credit cards which people inevitably have even if they routinely pay the amount due each month and ensure that none of the balance is carried forward and so never pay any interest on it, and which may or may not take into account the value of their assets, that is not only the value of the property they are buying on a mortgage but also that of other assets. Obviously if there are net creditors then there must also be net debtors, and some of those net debtors may be heading for trouble which will then become trouble for some of the net creditors as well, but in my view it is a mistake to get wound up about the gross total of debts owed when the great bulk of them effectively cancel each other out. If two people really wanted to get themselves scared stiff about their debts, on that mistaken gross basis, then they could easily arrange to do that just by agreeing to lend each other a trillion pounds when neither of them could possibly repay such a huge sum.

  17. FCA
    Posted January 13, 2015 at 1:00 pm | Permalink

    I spent several years in articles to a firm of Chartered Accountants learning that for every debit there has to be a credit. In view of the debts incurred by the UK, USA & Euro where are the corresponding credits and who has been so unwise as to lend to us. Presumably our Grandchildren who as yet do not know any better or are there any economists who can give us a valid answer..

  18. CHRISTOPHER HOUSTON
    Posted January 13, 2015 at 1:38 pm | Permalink

    A great mixing of statistics.
    If Ireland’s indebtedness which you quote at 1000% of GDP is significant then Greece with 174% ; Russia with 23%; Sudan with 54% and Morocco’s 22% though the latter statistic may be the product of hazy debate in smoke filled rooms, knocks the UK’s 406% into the long grass.

    Political debates Questions/Answers as with Andrew Neil’s TV programmes are painful in that politicians butterfly from point to point without courtesy to any logical progression of narrative let alone substantiveness.

    The UK appears to be running its economy on the same basis/procedure as a gold mining company in that cash-flow is the determinant. But that is a specific manner of progress where leverage is crucial. Where Company-UK is concerned there is no gold in them there hills.

    Pouring beakers of coffee, cooking beefburgers and sandwiches for one another may provide low pay jobs and somehow create new unrelated statistics of growth and indebtedness but won’t do much to reduce the debt letters Mr Miliband forgets and leaves depressingly unopened under his letterbox.

    • Kenneth R Moore
      Posted January 14, 2015 at 11:51 am | Permalink

      Agreed much of the Uk’s growth seems to come from activities that could be described as ‘taking in each others washing’ – services that aren’t internationally marketable and do nothing for our trade deficit and add no value to our economy.
      Opportunities for car washing , drinking coffee, buying food and consumer goods abound but it’s now almost impossible to buy anything that is British built.

  19. Michael Cawood
    Posted January 13, 2015 at 1:55 pm | Permalink

    The only way to cut down borrowing is to raise interest rates and this needs to be done very quickly.

  20. ian
    Posted January 13, 2015 at 3:02 pm | Permalink

    It like going back to school and playing in the play ground where you make up the rules as you go along. All eyes are on japan at the moment to see if they can follow suit. If you want to do something new in tax it has to be past by the world money institutions first like imf and the rest. If they do past it you can not do it. They work like a informal communist institutions controlled by central bankers and the usa with the dollar. As long as your debt going up your alright you will be put in the good book. On the other hand if your russia with 13% of debt you go in the bad book and beaten up and till your debt go up, same with china. The word is if japan can do it so can we, if need be. So why are they making such big deal of it here because we owe a lot more than they are saying and most of it owe outside of the country.

    So going down to the polling station to vote for change is a waste of time. Even if ukip won the election and started to pay off the debt you soon see the country in the same club as russia getting beaten up.

  21. Denis Cooper
    Posted January 13, 2015 at 3:05 pm | Permalink

    Meanwhile, over in Ireland there is some discontent as it becomes clear that there was no substance behind previous government promises that the EU would eventually help out with the debt incurred through the government’s rescue of the commercial banks to prevent a meltdown across the eurozone, provided that the Irish behaved themselves and punctiliously complied with the terms of their bailout:

    http://www.independent.ie/opinion/columnists/colette-browne/coalitions-plan-to-recoup-64bn-bank-debt-is-a-failure-and-were-paying-for-it-30902479.html

    “Coalition’s plan to recoup €64bn bank debt is a failure – and we’re paying for it”

    “The message couldn’t have been clearer. If the Irish people sucked it up and took the pain of austerity without whinging, they would get their reward – the crippling €64bn bank debt would be eased.

    And suck it up we did. The Irish people weathered every single tax increase and service cut with barely a murmur of complaint. Unlike the Greeks, we didn’t riot, we didn’t protest. We took the pain.

    Well, we’re now out of the bailout programme and the “additional help” promised by our European partners is nowhere to be found. Instead of being rewarded with cash, we have been patronised with platitudes about what a great little country we are. We stuck to our side of the bargain but it appears the Government, before it started making grandiose statements about seismic shifts, didn’t read the small print.”

    Well, I expect that they did read the small print, but they knew that the Irish people wouldn’t much like to hear what they read there and so they lied about it.

  22. Jon
    Posted January 13, 2015 at 6:53 pm | Permalink

    It’s the debt servicing, I believe it currently costs the Treasury about £49bn pa but we are getting very favourable rates at the moment, perhaps in part because of Euroland issues. That figure could easily rise to £75bn in future. There is part of the reason why we need to cut back and why students have to pay for their university education etc.

    I remember in the naughties so much nonsense talk from so called experts and certain politicians that there is no limit to the amount of debt you can have ignoring the servicing costs. I think a lot of ordinary folk didn’t buy into that and I don’t believe the then Chancellor thought an economy based on credit could continue indefinitely and there would be no bust. Perhaps why he was so keen to move next door at the time.

    If Labour get in the gilt bond renewals are bound to demand higher rates to be paid.

    • petermartin2001
      Posted January 14, 2015 at 1:38 pm | Permalink

      Yes borrowing costs are about £49bn pa. They represent about 3% of GDP which lower than they were at any time since WW1 except for the period 2001 -2008 when they dropped to about 2% of GDP.

      http://en.wikipedia.org/wiki/United_Kingdom_national_debt

      Governments can choose to issue Gilts if they wish. If they are sold to overseas buyers they force up the value of the £ which causes the levels of imports to rise and exports to fall. Is this a good thing? That’s debatable. But Germany, for example when it ran its own currency, would never have allowed its exports to be priced out of the market the way the UK government does.

      Those who wish to purchase UK gilts are in no position to demand a higher price. Or, they can demand but the UK government can equally refuse. If we stop selling gilts, or if no-one wants to buy them, or trade will move into balance and our government budget deficit will reduce. Isn’t that what everyone wants?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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