A “debt clock tour”? What a waste

The TaxPayers’ Alliance is launching a 1,300 mile tour around the UK with a clock that counts the increase in government debt by the second attached to a lorry. It is 7m long, they gush.

Good lord. Put the carbon emissions that this ridiculous exercise will create to one side. What is the point they are trying to make? ‘To highlight the crushing size of the national debt” they state. Does TPA really think that the British public have been asleep for the last year? That we’ve missed the fact that the government has had to borrow a great deal of money?

Of course, showing a very big number getting bigger has an impact on the individual observer. But gimmicks like this demean what is a complex and important issue. Of course the TPA are trying to scare us into voting a certain way.

It is therefore essential to make the following points:

First, having made tax cutting a central plank in the election, the Conservatives can no longer lay claim to being the deficit hawks they once were. How quickly will the debt clock increase by £6bn?

Second, there is complete agreement across party lines that the deficit needs to be reduced, slowing the speed with which we continue to add to public’s overall burden. But no one is proposing to make serious inroads into this aggregate number, because for the foreseeable future that would be impossible. So the ‘crushing size’ of our debt will remain so, regardless of who wins the election.

Third, if the economy were in depression, the size of the debt would be far bigger. General consensus is that government action across the world has limited the depth of the downturn. Now we’re growing again, benefit payments should start to fall and tax receipts should start to rise – but this would not have been possible without government borrowing in the first place.

Fourth, we can still afford our debt. The interest rate the government has to pay people who lend it money has not significantly increased in recent times, with the ten year yield trading around 4%. Indeed recent government auctions were well covered – around twice as many people wanted to buy government bonds than were available.

Finally, the ratio of debt to national income, in effect a measure of affordability, is lower now than in many previous periods in history, even if the absolute number is higher. If my debt is £50, but my income is £500 (implying debt to income of 10%) then I’m in a better position to repay my obligations than someone who only owes £5 but has a debt to income ratio of 50% – i.e. an income of only £10, particularly if we both have some fixed costs.

In the late 1940s and early 1950s, we managed to survive with debt to GDP of 250%. The ratio remained well above 50% until the early 1970s, coupled with much higher rates of interest. We’re now up above 50% again, which though a cause for some concern certainly doesn’t merit panic, especially if the economy is growing and the government of the day is committed to a combination of real spending cuts and tax rises.

What might cause some flutters of worry is if politicians insist on stoking fears of bankruptcy whilst promising deficit reduction on efficiency savings alone. Put that on the lorry.