The UK’s “maxed out credit card” myth

One argument given by the government for its vast programme of public sector cuts is that the UK has “maxed out its credit card”. This crude analogy bears no resemblance to the reality of Britain’s financial situation, yet it goes largely uncontested in public debate and serves to legitimise the devastation that is being wreaked on public services, the welfare state and public and private sector jobs and working conditions.

George-Osborne-angry Far from the UK being no longer able to borrow money on the international financial markets, the interest that the UK pays on its debt is currently at a historically low level, as is the UK’s debt-to-GDP ratio.

UK ten-year bond yields are marginally higher than those for the US and far healthier than those for Australia and New Zealand, for example. In the run up to last year’s general election, amid scaremongering about a potential debt crisis and the dangers of a hung parliament, yields on government bonds remained stable.

In a September 2010 article: ‘Can bond yields fall even further from these historic lows?’, Ross Watson, portfolio manager with Securities and Trust of Scotland, told the financial journal Investment Week that:

“For the taxpayer, it is excellent news that the Government can fund its deficit at such low returns.”

Such sentiment hardly denotes a country close to bankruptcy.

Another argument the coalition government gives for frontloading public sector cuts is that it’s unfair to saddle future generations with a mountain of debt. This argument is a perversion of the realities of private sector induced deficits on several counts.

Firstly, it fails to take account of the fact that over 70 per cent of interest payments on government debt remains within the UK, going into savings and pension schemes – yours and mine.

Secondly, it bypasses what any economist worth his salt knows to be the case, which is that you can’t cut your way out of a private sector created budget deficit.

Trying to do so simply condemns an economy to years of low growth as seen in Japan over the last decade. The Japanese government cut its stimulus too soon after recession, before Japan’s private sector had had a chance to recover. It was also evidenced in the UK in the 1930s (the last time that a post-recession public sector cuts programme was implemented in the UK on such a scale). Economic slowdowns make it harder to address structural deficits and repay government debt.

Thirdly, taking demand out of the economy when the private sector has not fully recovered risks a double dip recession – as was glimpsed with the fall in UK GDP of 0.5 per cent in the last quarter of 2010 – which serves only to inflate government debt.

Despite the coalition’s best efforts to mislead the public, the UK’s structural deficit is a product not of Labour overspending, but of the collapse in output of the private sector following the financial crisis initiated by the fall of Lehman Brothers in 2008.

Fourthly, at a time when the economy is already on its knees, it leaves the economy ill-equipped to compete against its healthier, better educated and better connected, more meritocratic international competitors.

The ending of the previous Labour government’s fiscal stimulus, the public sector cuts, the contraction in UK GDP at the end of 2010 and the rises in unemployment and associated welfare payments, combined with the damage that the prospect of deeper cuts have done to business confidence and investment, have all exposed the continued weakness of the UK’s private sector. This has led to a rise in government bond yields, further increasing the amount that the UK has to pay to service its debt.

Austerity is doing the opposite of what we are told it is aimed at achieving, and all this before the cuts have really started to bite.

http://twitter.com/nulabournemesis/status/45879022005133312 Νέα Νέμεσις Εργασίας

RT @leftfootfwd: The UK's "maxed out credit card" myth http://bit.ly/eMT7UX << DEFICIT DENIER KLAXON! #UKUncut
http://twitter.com/mrsvb/status/45879157942525953 Mrs VB

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/badgerbrocks/status/45879319263846400 bryan

RT @leftfootfwd: The UK's "maxed out credit card" myth http://bit.ly/eMT7UX
http://twitter.com/oldmankelv/status/45879504584966144 Kelvin John Edge

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/jordanbhall/status/45879906512547841 Jordan Hall

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/_amandawoolley_/status/45880112511590400 Amanda Woolley

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/russsmith/status/45881359037775872 Russell Smith

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/iannellin/status/45882548085198848 Nicola Iannelli

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/threadbarepanda/status/45885115846492160 threadbarepanda

RT @leftfootfwd: The UK's "maxed out credit card" myth http://bit.ly/eMT7UX
http://twitter.com/lordbensham/status/45886385596542976 Terry Coleman

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/jodatu/status/45887416283824128 John Turner

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/paul0evans1/status/45889429008683008 Paul Evans

“For the taxpayer, it is excellent news that the Government can fund its deficit at such low returns.” http://bit.ly/fYG7Gz
http://twitter.com/marjory1/status/45890253172637697 Marjory Robertson

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/lesa50/status/45897075111632896 lesa

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/englishsalt/status/45901540925513728 English Salt

Salt News: The UK's “maxed out credit card” myth http://bit.ly/ePwKxU
Alan W

Where did you find that photo of Osborne?

He looks like a month old corpse fished out of the Thames.
http://twitter.com/oasis_of_truth/status/45905732989747200 Oasis Caretaker

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
Mike

Tax dodging creep.
http://twitter.com/unisoneastmids/status/45920502551805952 UNISON East Midlands

The UK’s “maxed out credit card” myth http://is.gd/CmK3pS
http://twitter.com/keep6music/status/45922143606800384 Steve

RT @leftfootfwd: The UK's "maxed out credit card" myth: http://bit.ly/eAKzE3
http://twitter.com/elainesk/status/45927236628525056 Elaine S

The lies the #condem tells folk! For those who continue to believe in this idiotic #Coalition http://bit.ly/dGuG7N #labour #politics RT
http://twitter.com/cllrkrichards/status/45937566150688770 Kevin Richards

Read this and dispel the myth -RT @leftfootfwd: The UK's "maxed out credit card" myth http://bit.ly/eMT7UX
http://twitter.com/c_a_jonestechno/status/45965635863326720 CAROLE JONES

RT @leftfootfwd: The UK's "maxed out credit card" myth http://bit.ly/eMT7UX
Mr. Sensible

Couldn’t agree more Mark.

Further to your comments on our own GDP in Q4, I think we only need do what Osborne once told us to do and look over the Irish Sea at what happens when you cut too early…
http://twitter.com/oranjd/status/45985767872401409 James Doran

The UK’s “maxed out credit card” myth #ParadoxOfThrift #austerity #cuts http://bit.ly/eInncM
http://twitter.com/myinfamy/status/46096132975230976 Daniel Pitt

EXPOSED: The UK 'maxed out credit card' myth http://bit.ly/eAKzE3 #ConDemNation
Anon E Mouse

Mr.Sensible – What happened over the Irish Sea has nothing to do with the cuts that country made, early or otherwise. To suggest so is almost as stupid as claiming the economic cycle had been abolished – an end to boom and bust?

All this childish article is doing is taking a single comment “maxed out the credit card” and then going to the nth degree with the criticism on that one remark. It’s all the left can do being devoid of any strategy for governance.

Labour supporters just cannot see the big picture – you yourself for example Mr.S refuse to condemn the Guardian Newspaper and it tax avoidance scam on the British people or the fact Labour councillors in Nottingham are wasting £thousands of tax payers money on their own personal pet projects.

Until the Labour Party actually apologises for the economic devastation it has inflicted on this country it will never be taken seriously as a potential government again.

Tell me Mr.Sensible. Are you seriously saying that this country will take any lessons on the economy from a political party that is almost bust (£24 million in debt is it?) with a shadow chancellor who doesn’t pay his bills and a leader who is a tax fiddling property multi millionaire who has not done a single days work in his life?

Whilst all the Labour group thinkers read sites like this one and snigger over supposed “gaffes” like not sending rescue aircraft to Libya in time I remember Dr David Kelly and the lies over the Iraq war that cost the live of thousands.

Labour need to grow up – having a leader only elected by the unions who is totally helpless in the commons and looks like a school child doesn’t help – but to continue to publish non stories like this one serve only to confirm ex-Labour voters like myself that I won’t vote for the party for a long long time.

And neither will anyone else in middle England…
http://www.tmmblog.co.uk Cahal

@Anon E Mouse

It’s amazing that people are blaming Labour for a GFC that has its roots in the deregulation and tax cuts of the 80s. No doubt, Labour could have done something but to be honest the entire world was blind, and things would not have been any different under the Tories (they actually wanted more deregulation).

As for the whole deficit thing, the government is not a household. Take a look at some facts before you assert that Labour ‘spent and spent and spent’ and we were ‘living beyond our means’:

http://www.tmmblog.co.uk/?p=1627

We are missing a huge opportunity to invest in our economy.
http://twitter.com/theday2day/status/46565603909177344 Adam White

Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/paulsandars/status/46566157435666432 Paul Sandars

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/timtim1981/status/46566692318486528 Tim Easton

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/yorkierosie/status/46566784471547904 yorkierosie

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/oldpolitics/status/46567694870392833 The Old Politics

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/szeitblom/status/46567711190417408 Serenus Zeitblom

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
Stephen Smith

Anon E Mouse – did you read the article then ?
http://twitter.com/dts1970/status/46568336510824448 Danny Strickland

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/ngt67/status/46569767913525249 Nigel Toye

Osborne myth exposed. http://bit.ly/dPTIy1
http://twitter.com/peterdcox/status/46570248371052544 Peter D Cox

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/mabjones/status/46571013827330048 Mab Jones

RT @peterdcox: RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/timswift/status/46572233010839553 Tim Swift

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/tomcopley/status/46577537479999488 Tom Copley

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/chrispenberthy/status/46587045640019968 Chris Penberthy

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A definite must read!
http://twitter.com/mrdaveconroy/status/46588623956611072 Dave Conroy

RT @theday2day: Exposing Osborne's "maxxed out credit card" myth http://bit.ly/dGuG7N Superb article! A defin… (cont) http://deck.ly/~wcImE
Nick Drew

So Anon E Mouse (nice to see you front-up with your real name) – does the UK have a “maxed-out credit card” or not? You don’t seem to have addressed that particular point.
http://twitter.com/caspertk/status/47223055633752064 Casper ter Kuile

RT @leftfootfwd: The UK's "maxed out credit card" myth http://bit.ly/eMT7UX
http://twitter.com/woodsculpture/status/47223744703369217 Kim Neith-Thompson

RT @caspertk: RT @leftfootfwd: The UK's "maxed out credit card" myth http://bit.ly/eMT7UX
Big Al

Anon E Mouse

Oh, right, so it’s Labour who created the economic disaster in Greece, was it? And in Ireland? And in the States? Oh, and it was also responsible for the mess in Spain, Portugal, Iceland and virtually every single other First World country???

Wow, and people are out on the streets around the world in protest at policies that they think promoted a banking disaster and now make them, the people responsible for this. But it wasn’t the wide boys in global stock markets and banks making millions while selling crap mortgages that were being ‘paid’ for by US unemployed. Well, perhaps as these citizens of these countries see their homes taken from them, their jobs going – in Germany, the US, in Australia – and as they watch the rich boys in the banks who created the casino economies helping themselves to vast bonuses, you’d better tell them it was naughty old Gordon Brown wot don it.

Best to stay Anon E Mous and keep reading the Daily Mail – run by people who just want the best for this country.
Anon E Mouse

Cahal – The Tories may have wanted more regulation but it happened on Labour’s watch and they are to blame – anything else is just speculative twaddle. It wasn’t the Tories who knighted Sir Fred Goodwin amongst others…

Nick Drew – How is the validity (or otherwise) of my comment(s) affected by my identity? The comment(s) either have merit or they don’t. Unless of course your intention is to attempt a New Labour smear – ask Peter Watt or David Kelly’s widow. They know…

Big Al – The books in this country haven’t balanced since 2001 as you are well aware. The structural deficit of Great Britain is not affected one jot by the actions of greedy bankers – they are two separate issues (except the costs of borrowing of course).

That attitude may work on a group think site like this fine blog but middle England won’t buy it. No middle England means no Labour government. Not that it’s going to happen whilst that tax avoiding property millionaire who’s never done a single days work in his life is at the helm anyway. Nice one Unison.

The Daily Mail I have never read, not because Gordon Brown’s bestest buddy was the editor but because as a Labour voter my whole life (pre Brown) it’s just something I wouldn’t read. Still at least they pay their taxes unlike the Guardian…
http://twitter.com/unisoneastmids/status/69418821122924544 UNISON East Midlands

The UK's "maxed out credit card" myth | Left Foot Forward http://is.gd/CmK3pS
http://www.leftfootforward.org/2011/10/ernst-and-young-economic-growth-downgrade/ Cameron’s “failed experiment” leads to yet another economic downgrade | Left Foot Forward

[...] Ernst & Young have joined a growing body of organisations speaking out against the well-worn “maxed out credit card” [...]
http://www.leftfootforward.org/2011/10/compass-plan-b-good-economy-good-society/ With Plan B, we can have a good economy for a good society | Left Foot Forward

[...] Plan B has two main purposes. The first is to expose Plan A as a recipe for economic disaster for the UK, based on a false set of economic assumptions that the Conservatives, and their allies in the Liberal Democrats, are using to deceive the British public in several ways – for example by the entirely false assertion that the UK is “bankrupt” and has “maxed out its credit card”. [...]