I chose to talk about the country's financial position in the Queens Speech debate last week as I believe it is central to the government's programme for the final year of the coalition.
Current UK Government debt is approaching 100% of GDP. Household debt is roughly the same. Financial sector debt is over double this amount due to the historically large size of our banking industry.
None of this includes the off balance sheet issues such as Private Finance Initiatives and unfunded pensions. I appreciate it is a matter of opinion as to whether these should be included as liabilities of the state. If the country were to account like a business they would be. If government did account like business then they would add perhaps another 200% of GDP to our debt.
Economists differ as to our total debt burden, but on any basis it must be approaching 500% of GDP. This makes Britain one of the most indebted countries in the world.
Over the past four years the Government has made heroic efforts to combat the legacy of the 2008 financial crisis. Whilst opinions might differ as to the wisdom and effect of Quantitative Easing and other stimulus programmes, the Government has steadied the financial ship.
The problem is, despite the austerity narrative, public spending continues to rise and our debts continue to grow. There are currently a number of other issues thrown into the political mix such as; Scottish independence, immigration and Europe. Whilst these are of course important issues, they perhaps distract from the key fiscal debate.
They provide a welcome distraction; however, as an open debate about our debt levels is a difficult one. Difficult for two reasons, firstly because the numbers I am talking about are so big they are hard to comprehend. Secondly and more importantly because it involves cut backs to the way we live and we are all hard wired to avoid pain. Who will vote for it? And which politician will put pain centre stage in their manifesto?
There are many opinions on how to deal with our economic problems. As a businessman, I have no other frame of reference than the business principles.
John Micklethwait and Adrian Wooldridge from the Economist recently published a book called 'The Fourth Revolution'. In it they draw lessons from the Asian economic model, in particular Singapore.
These provide some interesting ideas including;
• a system for educating its public administrators from an early age and paying them generously. In business terms - 'hiring the best'
• a more robust system for social welfare with higher contributions from individuals and businesses, and more emphasis on self reliance
• and, most of all, long term planning horizons
I appreciate that Singapore operates under a different political system and some of its methods would be difficult to apply in Western democracies. However, the country's success does rather speak for itself.
We have also seen Western countries such as Sweden adopt Singaporean type methods - such as the tight fiscal rules which reduced Sweden's debt from 70 to 37% of GDP in less than twenty years.
There is tremendous nuance in this area of debate. It is all too easy to sound off, and there are no easy answers. In my view we must plan for some bumps in the road ahead - such as when rates normalise or further political uncertainty.
I sincerely hope and expect our recovery to gather pace. But if it should falter we may need to consider more stringent business methods with which to run our lives.
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