We need more than divine intervention to pay off our debts

Former Archbishop of Canterbury, Lord Carey’s timely intervention on welfare reform reminds us that, tucked away amongst the Church hierarchy, there are some who still value the work ethic traditionally associated with Protestantism. Prominent historian, and CPS board member, Niall Ferguson even claimed in his book, Civilisation, that it was a ‘killer app’ in Western dominance over the past three centuries.

But the more interesting aspect of the former head of the Church of England’s interview was his focus on the immorality of debt. As our official public sector net debt bloomed to over £1 trillion this week – that’s £38,317 per household – he is right to highlight that “if we can’t get the deficit under control and begin paying back this debt, we will be mortgaging the future of our children and grandchildren.”

This moral argument can be a difficult one as public sector workers lose their jobs – indeed, my step-mother was recently made redundant from the Ministry of Defence, so I should know. But the tentacles of a high debt burden reach far further than a notional appeal to intergenerational justice.

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Those who tell us that our national debt has been higher in the past ignore the lessons of recent history. In one of the most important speeches since the formation of the Coalition government, the Defence Secretary of the time, Liam Fox, spelt out the effects of poor economic health on world standing. 

‘Economic considerations underpinned both the British withdrawal from Palestine in 1948, and the abandonment of the Suez campaign in 1956,’ whilst ‘the Cold War was won because the Soviet Union collapsed under the weight of an economic system that could not sustain the myth of communism’s superiority — nor sustain the military forces required to hold it together.’ The lesson is clear: debt has huge implications for both national security and economic performance, as the analysis of the Defence Select Committee today makes clear.

It’s curious, in this context, that debt hasn’t been talked about more. Whereas the Republican primary debates talk synonymously between debt and deficit, most Coalition ministers have focused on the latter. On closer inspection, this is not surprising. Even with real terms cuts over this Parliament, the official public sector net debt will continue to rise to 78 percent of GDP in 2014-15 or £1.4 trillion according to the Autumn Statement.

Nor do the official debt figures paint the full picture of the true state of our public finances. According to preliminary calculations for a forthcoming CPS Factsheet, once the financial interventions, outstanding public sector pensions liabilities, PFI liabilities and National Rail are included, we are looking at a public debt burden of £3.69 trillion – 236 percent of GDP or £141,000 per household, which is relatively close to the Government taking out a new mortgage on each household’s behalf.

And our public debts must be put into the wider context of our overall debt burden. McKinsey’s ‘Debt and Deleveraging’ report shows that the total combined debts of households, nonfinancial corporations, financial institutions and government now equates to a huge 507 percent of GDP, second only to Japan.

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