Saturday, 27 March 2010

Alistair Darling and His Genius Debt Dodge

"Fraser Nelson has long said that one of the biggest problems with the debate around Britain’s battered public finances is that too many people confuse the deficit (the gap between revenue and expenditure) and the total national debt. He’s right. One now hears the two terms used interchangeably.

The Chancellor and the Dark Lord (Mandelson) realise why this is important and are cleverly spinning accordingly.

The government has a plan to “halve the deficit” in the next parliament. When ministers, such as Liam Byrne and Mandelson, emphasise this endlessly they want voters to hear it as debt somehow being halved. But it’s no such thing. Ministers only aim, on rather heroic growth assumptions, to half the size of the annual gap between income and expenditure in four years.
They never mention the national debt. And no wonder. It’s going to go through the roof.

The Treasury projections on debt are horrific. By 2014-15 it will hit more than £1.4 trillion. As of February, public-sector net debt was sitting at £848.5 billion. So it’s going to almost double again.

The amount the government pays in debt interest payments then becomes such a large chunk of tax receipts that it represents a vast waste of national resources. Those payments could easily come close to £100 billion each year by the middle of the decade if there is any increase in interest rates. This is more than the likely annual education budget, just on paying the interest on the debt.

The Tories seem trapped and don’t sound very clear (Cameron’s punchy budget response being the exception). Sometimes they talk about the deficit (which few voters will understand in its proper sense) and claim it’ll come down a bit faster on their watch if they win. On other occasions they point and say: Look at the enormous debt, isn’t that scary!

Meanwhile, Labour sticks calmly to spinning its line of halving the deficit — and the effect is like an anaesthetic being administered to voters. Labour hopes the patient, the electorate, doesn’t wake up to this between now and the election. The debt dodge is a smart wheeze. And it is now central to Labour’s emerging electoral strategy of offering supposed reassurance in contrast with alleged Tory risk.

Ed: article reproduced in full due to its importance.

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