A Debtor’s Prison

April 29, 2013 9:01 AM

The TaxPayer’s Alliance Bumper Books of Government Waste helped set the national agenda on how Whitehall and local councils spend and sometimes squander our money. I’m hoping my new book on the national debt, just out, will do the same on our deficit. It’s astonishing how commentators defend our being in the red without much of a clue on how we got here this time and what happened to governments who trod this path before.

So how bad is the national debt?

One of the problems facing us is that people find it hard to think in abstract ledger columns, and billions are frankly sums that only Dr Who can imagine. So let’s try to put both the debt and the deficit into terms that readers can better handle, and can also perhaps more easily remember for debates down the pub and when writing letters to the newspaper. 

The national debt at the start of this year was a very memorable sum. It ran at £1,111 billion. Expressed slightly differently, that’s £1,111,000 million, or £1,111,000,000,000 – four ones, nine zeros.

That’s a heck of a hangover to wake up to after your New Year’s Eve party.

Actually it was £1111.4 billion but with debt that big, what’s £400 million between friends? The state’s new house building budget since you ask, but we’ll let that pass.

Such was the debt but now let’s turn to the deficit. The Government’s tax take was around £547 billion for that year. The additional level of net borrowing on top of that was about £122 billion more. That meant that not far short of one pound in five being spent by the Government had to be borrowed. So the debt level in the ship of state was getting deeper not through a leak but a full briny breach.

Why is this a concern? We’re living through an age where debt-to-GDP is, very roughly, around 75%. That’s comparing the sum that the Government owes with the total of what all of us churn over in the economy in a year. The Maastricht criteria defined an acceptable limit by the way at 60% (and the figures above exclude the off-the-balance-book fiddles).

But the state doesn’t handle the GDP, just its own budget. The debt-to-Government-income ratio is already past 200%, and getting worse. It’s going to have to find that massive shortfall from somewhere, and with incremental damage.

Now let’s try to put the sums owed into a more visual form. What does that £1.1 trillion mean?

A few years ago, EU regulations on recycling electrical waste led to difficulties in disposals and a spate of illegal dumping going on. It created the infamous ‘fridge mountains’. £1,111 billion could, for example, be spent on some fairly respectable brand new Zanussi fridges. Let’s order them from John Lewis (which is where MPs go).

I estimate you could theoretically buy 3,268,823,529 fridges. Three and a quarter billion. Easily enough to put one in every household in Europe ... in every room.

Now let’s apply some geometry and build a fridge homage themed on King Tut. We’ll make a giant pyramid. Let’s consider it a late Jubilee event and place it in front of Buckingham Palace, with its edge running the length of the Mall, and stretching out over the Parks.

On that basis our national debt just as it stood at the New Year could, by my calculations, reach up to form a pyramid 3,548 metres high (2.2 miles).  Ben Nevis is only 1,344 metres (4,408 feet). We could guarantee ourselves a Turner Prize and erect a monstrous new Alp.

The local residents might, not unreasonably object, and Heathrow might have issues. So let’s reflect on an alternative spend.

One estimate of the current cost of HS2, the controversial rail link, is £32 billion. Many challenge its viability and value, but let’s take it at face value. Given the length of the project and its cost, we could instead use the £1,111 billion to run a line to beyond Peshawar in Pakistan. In other words, you could build HS2 from London to the Khyber Pass from the national debt as it stood on New Year’s Day 2013. That would make it far easier to commute to take on the Taliban.

Or we can reflect again on our problematic aircraft carrier budget. The bean counters in the Treasury tell us we can only supposedly afford two, and only if they’re empty: not so much aircraft carriers as “air carriers”.

Of course, an aircraft carrier needs planes to go in it, plus a task force to defend it. Let’s say, two submarines, four frigates, two top of the range air defence ships, and four supply ships. We’d thus create a 13 ship battle group to match anything the Americans have, with more firepower than the Falklands task force. I calculate £1,111 billion could build 93 such battle groups. Last time anyone counted, the Americans only have 11 aircraft carriers, so Britannia really would rule the waves.

How about another angle? Tony Blair is a much-in-demand public speaker. He is said to cost £364,000 per hour.

Let’s imagine his mission in life has become to sort out the debt. In turn, we’ll allow him to work for just 8 hours a day as he has to keep his voice. By our reckoning and on those hefty rates, Mr Blair could pay off the national debt (as it stood on 1 January) by endlessly lecturing to the world’s elite – but he’d be at it until the year AD 3047.

Or let’s review another former Prime Minister. Margaret Thatcher’s statue was a bit of a controversy in Grantham. It’s made of Italian marble and is said to weigh two tonnes. What if it were made of gold? Some comparative calculations indicate that it would come in at a little over £48.7 million. Rather than let Grantham decide whether to have the statue or not, you could just smelt 22,821 pure gold Thatcher statues and send them out to towns and villages across the country (possibly excluding Scotland), paid for out of the national debt. It would certainly be a glittering national memorial, though somewhat missing the point about the baroness.

So much for the debt. But what about the cost of servicing it, or what it means in terms of simply paying off the interest?

In 2012 debt servicing took £44.8 bn from the Government’s budget. This was money it was thus unable to spend on other things. Putting to one side the money spent on new credit that year, it means that one pound in thirteen raised by tax was just being eaten up by past debt. This is going to get worse as debt is accelerating far faster than tax revenues. Realistically, we’re looking at an extra £16 billion on debt repayments from where we are already at today.

So, what could be done with that extra lost £16 billion in annual interest payments coming out of your pockets?

Northampton General Hospital had to make £19.1 million savings in 2012 because of our national debt being shared out and passed down locally. The hospital has a budget of £230 million. Since an additional £16 billion has to come out of the budget somewhere, that means the bigger national debt will lead to the equivalent of the loss of 69 hospitals like this one across the country. Generating bigger deficits won’t protect the NHS, which is why Labour’s plan to create an even bigger deficit than the one we’re getting is pure crazy talk.

Or again we could look at how that £16 billion compares to taxes levied elsewhere.  There’s understandably been a lot of kerfuffle about Government’s tendency to heavily tax our pints. What could £16 billion get you? It’s more than the pre-tax price of the beer sold in the UK every year, so you could hand it all out as free pints to the nation (though we wouldn’t recommend it). Not everyone of course drinks beer, so as an alternative we could buy up all the vino France exports globally, including all the champagne, and just hand it out in the UK. And since it’s causing the world a bit of a problem right now, based on GDP we can just buy a country like Mali with the remainder.

Our national debt is huge. The consequences of having to manage it are considerable. The impact of running a persistent deficit is painful. That’s what our political leaders need to understand, and the sooner very much the better. I hope the book helps.

Lee Rotherham’s new book, A Fate Worse than Debt: A History of the National Debt from Boadicea to Cameron, is available at bookshops.

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