The coalition has promised, amongst other things, to ‘wipe the slate clean’ of debt by 2017. It appears to be in a state of denial
‘We have a moral duty to the next generation to wipe the slate clean for them of debt. We have set out a plan – it lasts about six or seven years – to wipe the slate clean to rid people of the deadweight of debt that has been built up over time.’ So said deputy prime minister Nick Clegg in his Rose Garden 2 speech yesterday.
But can Clegg really believe that the country will be free of debt by 2017? It’s a nice thought, of course, but entirely divorced from reality. Official forecasts from the Office of Budget Responsibility show that the stock of national debt will be £1,300bn by 2017 – about £300 billion more than today.
Clegg is not the only coalition minister who seeks to blur the important distinction between our deficit (about £126 billion last year) and our outstanding debt (about £1 trillion, or 66% of Gross Domestic Product). But the deputy prime minister’s new ‘wipe the slate clean’ formulation is, to my mind at least, the most egregious example of this kind of manipulative rhetoric utilised thus far.
It is now clear that in the absence of growth, the government’s fall-back strategy for reducing the deficit is to slash public capital expenditure. The OBR figures show that the savage cuts to this part of public spending almost entirely explain the reduction in the deficit between 2010-11 and 2011-12.
According to the OBR, capital spending has a bigger positive impact on demand than any other element of public spending – with a fiscal multiplier almost twice that of current spending. Indeed, it was the reduction in public spending on construction that tipped the country into recession last month.
Of course, investment also increases the country’s long term growth rate, boosting the sustainability of our debts. But for politicians, it is the easiest part of spending to cut. After all, it is simpler to delay repairing a road or to shelve plans for a new IT system than it is to cut the costs of delivering services.
In this context, Clegg’s sense of ‘moral duty’ is curiously idiosyncratic. Passing a large national debt to our children is, to be sure, an unhappy prospect – but is the coalition’s plan to bequeath them a decaying and depreciated public infrastructure any less so?
Of course, this is not exactly how the deputy prime minister wants to sell his position. He cares about economic growth, he says, and is keen to find new ways of unlocking private sector financing for capital investment.
So Clegg’s view of our moral duty is revealed as even more intriguing. So long as liabilities are off balance sheet from the perspective of the official debt and deficit statistics, it seems he is happy to incur them on our children’s behalf.