Will everyone please stop obsessing about debt and start worrying about unemployment?

By Brian Barder / @BrianLB

In a Comment is Free article about the Tory obsession with the level of Britain’s national debt, Ken Livingstone aptly quotes the distinguished Conservative economist Sir Samuel Brittan writing in the Financial Times on 1 October:

“The British political classes are going through one of their occasional bouts of masochism, with party leaders vying with each other on the theme of who can cut public spending faster and more effectively. Spice is added by talk of leaks and secret plans; and ideology by arguing about the balance between tax increases and spending curbs. My own bottom line is that all this is in response to a largely imaginary budget crisis. If we have a normal economic recovery the red ink will diminish remarkably quickly. If we don’t, it won’t and won’t need to.”

(The whole text of Brittan’s article should be cut out, framed, and hung opposite the desks of all those, Labour, Liberal Democrat and Conservative, currently panicking about debt, instead of focusing all their energies on tackling unemployment and encouraging the earliest and fullest recovery from the recession.)

A comment on Livingstone’s article by ‘Freehead’ is also a useful and informative antidote to the current outbreak of Manchester Conference debt fever:

“I have been quoting Brittan too, Sam’s views are similar to my own.The idea that the UK has a dire fiscal problem is absurd. The fiscal surpluses will flow very well in the next 2 years, the debt servicing cost of the marginal debt is the lowest in 300 years on the stock of recently accumulated debt. The roll over rate is the best (next to Greece) in the industrial world, the average term maturity is one of the longest (over 14 years) and double that of Germany. This means that the Brittan’s and Institute of Fiscal Studies of this world are right…..the UK has no debt problem. This is just juvenile political point scoring by the big political parties.

“The UK debt burden will shrink very sharply in the next 5 years, even if, as Brittan rightly says, the UK growth rate is only normal in relation to past recoveries from other post war recessions. And, given that so far in the 9-months of 2009 the UK has received more FDI and other investment capital from overseas than ever before, given the huge boost to competitiveness from the weak GBP, and given that we have a jobless rate of only 5% (0.3% under the Thatcher trough at the height of the 80s boom) and to boot we have 4 million more full-time workers…..the chances are stacked in favour of a much stronger than average recovery in the next 5 years….especially as the next 2 years sees all the capital inflow and consumer and investment multipliers of Olympics development coming in.

“No way will the currently high level of gilt debt be anything other than a temporary one of cost. There is no fiscal repayment drag in the aggregate as the growth prompted by this debt far exceeds the cost of it. The revenue stream will hugely outweigh the debt servicing cost and today’s high indebtedness – in both the gross terms and as a % of GDP are poised to slide as the economy achieves recovery.

“But as this is all becoming clear, what I dont like is Ken’s willingness to lie to the population and to back an ruinous 50% tax rate for high income. There should be no such hike, it is neither just nor is it helpful. It is a very bad tax. Much better ways of taxing high income and wealth via property tax hikes, inheritance tax hikes, stopping private school fee rebates, higher VAT on luxury goods made outside the UK…..etc etc…there are lots of ways…this way hits everyone and is a stain on the liberal socialist heritage of Brown and Blair.”

I for one don’t agree with the last paragraph of “Freehead’s” comment, quoted above. Progressive rates of income tax are among the best ways of ensuring that those who can afford to pay more tax do so; and there are serious problems about taxing property as such as if it was income. Discrimination in VAT rates against goods made outside the UK, recommended by Freehead, would be protectionist and presumably in breach of numerous highly necessary EU and World Trade Organisation rules. But the rest of Freehead’s comment is spot on, and needs constant repetition before the mindless hysteria over reducing debt washes away all hope of an early recovery in a murderous tsunami.

George Osborne’s Tory Conference speech was a tour de force: eloquent, anticipating many of the more obvious objections, intellectually coherent, and highly persuasive, as much media comment on it already demonstrates. But these virtues make it all the more deeply damaging. If an incoming Tory government next May acts as Osborne now threatens to act (and there’s every reason to suppose it will), high unemployment will rapidly turn into mass unemployment and Britain’s recession will continue to deepen for years longer than necessary. Recession and unemployment and the collapse of demand in the economy are the pressing problems: not debt.

It’s time for Labour ministers and supporters to say so, loud and clear, instead of trying to compete with the Tories on their own treacherous ground.