Only by tackling spending will we ever tame the debt monster

Good morning everyone, let’s start the week with a gentle quiz. By the end of this parliament, will the United Kingdom’s national debt be a) higher, b) lower, c) about the same, or d) eliminated altogether? Balls, stop peeping at Osborne’s notes. Clegg, put away that calculator. The answer is, of course, a). In just four years’ time, our state debt will be 40 per cent – yes, forty per cent – higher than it is today. By 2015-16, thanks in part to the power of compound interest, the Government will owe on our behalf more than £1.4 trillion, compared with just over £1 trillion in 2011-12. For context, the extra £400 billion is equal to one year’s income tax, Vat, corporation tax and national insurance, combined. Over the past 12 months, the outlook for Britain’s liabilities has deteriorated. In his Budget last year, the Chancellor forecast that by the time of the next election national debt would be £1.359 trillion. Now he is predicting £1.437 trillion, some £78 billion more (twice what we spend on defence). Before considering why Britain’s debt is increasing at roughly £2 billion a week, here’s part two of the Monday brain-teaser. In the next four years, will our national income grow a) more quickly than the debt or b) more slowly than the debt? Those who answered a) must stay behind and see nurse. The horror we face is a debt monster, bursting out of its shirt like the Incredible Hulk, while our capacity to deal with the problem expands far too sedately. For those blessed with curiosity and a strong constitution, I recommend the Treasury’s Red Book, a cornucopia of historical data and terrifying estimates. The trick is to ignore the subjective guff at the front, which invites us to believe that government policy will deliver results, and start at the back with the Office for Budget Responsibility’s selected tables. Here we learn that Britain’s nominal GDP is expected to grow by just 20 per cent between now and 2015-16, whereas debt will increase at twice that pace. If the goal is to stop borrowing and start repaying what we owe, you will not find the tipping point in this year’s Red Book. Its forecasts end at 2016-17, when we will still be spending £21 billion a year more than projected earnings. There is no forecast for what our annual interest bill will be by then, but on the basis of this year’s £50 billion, about £70 billion seems likely. Disgraceful. How did we get into this mess? Why can’t George Osborne rebalance incomings and outgoings more readily? Where is prudence when you need her? In search of some answers, I trawled through more than 25 years of public spending records. What they show is a relentless rise in state largesse, through good times and bad, the upshot of which is institutionalised indulgence: luxuries have become necessities and value for money exists only as a concept. Between 2000 and 2010, UK government real expenditure (inflation adjusted) increased by 53 per cent from £451 billion to £688 billion. As Dr Tim Morgan, head of research at Tullett Prebon, a City broking house, notes: “No one has yet explained why the British state must spend £700 billion today, having managed perfectly well on £450 billion, at today’s values, 10 years ago.” Well, part of the reason is that injecting funds into one category of expenditure can lead to higher demand for resources in another. For example, it’s reasonable to assume that the 140 per cent increase in the health budget between 2000 and 2010 led to some people living longer. This added to the upward pressure on pensions, the bill for which rose by 78 per cent over that period. As a political proposition, cutting the NHS’s outlay in order to kill off our elderly is unlikely to win votes, so we need to look elsewhere for achievable savings. The obvious place is welfare: social security benefits and tax credits. Between them, they will gobble up £209.2 billion in 2012-13, about 30 per cent of all government expenditure, not much less than health and education combined. Through the 1990s, welfare spending remained more or less constant, according to ukpublicspending.co.uk. But after Gordon Brown decided to open the floodgates in 2002, outgoings increased from a respectable flow to an unseemly torrent. We were quickly turned into a nation of handout addicts, where anyone who dared challenge the merit of rewarding idleness was set upon by the pit bulls of political correctness. During the so-called boom years, 2002-07, welfare costs shot up by 40 per cent. New benchmarks for state munificence were established and a ruinous culture of entitlements became embedded. We were set on a path that led to some families legally claiming more than the average wage, £26,000, in benefits. In order to justify this obscenity, a new lexicon was created. Old words were given new meanings. This is what Orwell identified as political sophistry’s “catalogue of swindles and perversions”: the aim of distorting speech in order to defend the indefensible and consolidate conformity. Mr Brown used to talk of Labour’s “investment”, when he really meant consumption. By contrast, today’s spending cuts are deemed by the Left to be “savage”, austerity is never less than “cruel” and poverty has been redefined as a relative concept, thus making sure its victims will always be with us. “Fairness” is stuck on every act of income redistribution like a supermarket price label. Those who question the recipients’ needs are branded “callous”. Opponents of responsible spending talk of bringing back the 50p tax rate (which raised just £1 billion) and a new bankers’ bonus levy (£3-4 billion) as if they alone might solve our debt problems. This is ludicrous. To achieve a balanced budget, we need much less spending. We cannot tax our way to prosperity. Does fairness apply only to those at the bottom end of the income ladder? The top one per cent of Britain’s earners account for nearly 30 per cent of all income tax receipts. They pay £45 billion a year. How much must they cough up in order to pass the decency test? 40 per cent? 50 per cent? I put this question to the Shadow Chancellor last week. He would not answer. “If thought corrupts language,” said Orwell, “language can also corrupt thought.” We seem perilously close to such an outcome.