L’IREF cité dans The Telegraph
“The nine most terrifying words in the English language: ‘I’m from the government, and I’m here to help’.”
So said Ronald Reagan in 1986, five years into his US presidency.
Reagan grew up in a post-war world characterised by big-spending government and huge national debts. Together with Margaret Thatcher, he led the West towards an era of smaller government, emphasising free-market commerce, keeping the state out of the way.
We’re in dire need of similarly single-minded leaders. Government debts are soaring across the G7, driven by misguided pandemic-era spending, ageing populations and spiralling borrowing costs.
France, Japan, Canada, Italy and the US all have national debts well over 100pc of GDP – levels not seen since World War Two.
While the UK’s headline figure is slightly lower, at 98pc of GDP, our borrowing costs are easily the G7’s highest – in part due to our “inflation outlier” status.
During the year to September, the consumer price index rose 3.8pc, having refused to drop for three successive months, despite falling elsewhere. Average G7 inflation was just 2.5pc last month.
Financial markets are charging Britain more to borrow because this Labour Government lacks the grit to face down its massed-ranks of economically-illiterate backbench MPs – as shown by this summer’s botched attempt at extremely modest “welfare reforms”.
Welfare spending is set to rise 19pc to £373.4bn during this Parliament, with the bill for working-age health and disability benefits on course to soar 30pc to £97.9bn. Cowed by its own hard-left, the Government failed to achieve a penny of savings.
State interest payments since April were £67bn, 2.5 times more than during the same period in 2021/22.
Britain’s national accounts resemble a Ponzi scheme.
The Chancellor is now being warned by countless business groups that further tax rises, as opposed to spending controls, will thwart growth even more – hitting tax revenues and making the public finances even weaker.
Alan Vallance, chief executive of the Institute of Chartered Accountants, says the UK is “sleepwalking into stagnation” with business confidence “in freefall”.
Marks and Spencer chief Stuart Machin is urging Reeves to “change course” ahead of her November Budget, focussing on finding cuts to public spending instead.
Yet the headline debt numbers are only the start of it.
This column has long pointed out that, on top of the official public sector net debt measure, which is 98pc of GDP, the state is also on the hook for liabilities within the Bank of England’s asset purchase scheme (APS), private finance initiative (PFI) debts and the massive ongoing cost of public sector pensions, which between them take state liabilities up to an estimated 161pc of GDP.
A new study for the Institute of Economic and Fiscal Research, authored by the financial economist Bob Lyddon, says that since Labour took office, the party has clocked up unfunded spending commitment for new infrastructure, net-zero initiatives and “industrial policy”.
This is set to be met by private investments that need to be repaid and other off-balance sheet wheezes – which push UK state liabilities up to a staggering 219pc of GDP.
“So much of Labour’s new spending is to be financed off the books,” says Lyddon. “But, as financial markets know, these ‘shadow debts’ are huge and blow Reeves’s fiscal rules to smithereens”.
