‘The basis of this crisis is a very fundamental truth: it is politically easier to spend money than it is to raise it.’
This week on The Capitalist, I spoke to veteran journalist Ross Clark about his new book, Britain is Bust: The coming sovereign debt crisis and what it will mean for you.
Debt interest cost the UK taxpayer £109 billion last year, no government has balanced the books in a quarter of a century and long-dated gilt yields have broken 6%. Ross argues the country faces a choice: cut spending now, on our own terms, or have far deeper cuts imposed by the bond markets, as Greece did in 2010.
We discussed why he thinks neither tax rises nor a growth strategy built on public spending can get us out of the hole, why welfare and the state pension can’t be off limits, and why he would cut the state pension by 10% to unwind the effect of the triple lock.
Then we turned to the politics: why he doesn’t expect this Labour government to take a penny off welfare, why both the Conservatives’ and Reform UK’s plans fall short and whether voters can still be persuaded to back fiscal responsibility, as they did in 2010.
Below, you’ll find some longer excerpts from the conversation.
Marc Sidwell
Editor, CapX
How close is the crisis?:
‘Last year, the taxpayer had to spend £109bn just servicing our accumulated debts. No UK government in 25 years has balanced the books. We’ve just been running deficits, building up debt ever since, and it has got to the stage where we have long-term gilt yields above 6%, which is always considered to be a serious danger level… You seriously do not want to get into that situation where the markets are forcing cuts on you. You want to do it in a civilised and controlled way, where you can actually choose what you’re cutting rather than have it forced on you… You get away with it for a while and then suddenly the markets will turn against you. And when it happens, it will happen very, very rapidly.’
You can’t tax your way out:
‘Rachel Reeves said she had to raise taxes by £66 billion in order to end Tory austerity… What she means when she says austerity is purely state spending. But if you take £66bn out of the pockets of individuals and businesses, you are forcing austerity on them. And if individuals and businesses stop spending and investing, then you are curtailing economic growth… Public sector productivity has not increased in 25 years. That’s how shocking the performance of the public sector is. If you keep on transferring resources from the private sector to the unproductive public sector, you slow economic growth, and that’s what traps you in debt.’
Cut across the board:
‘It’s not a case of a few things you don’t like, like migrant hotels, or the things which come up from time to time. You really have to cut across the board to get that sort of 10% reduction in government spending. And the place to start is with the biggest budgets. Welfare is the biggest budget, over £300 billion… We also have to look at the state pension, which is pretty well the other half of the welfare budget. It’s not very politically easy to tackle pensions. But it can’t be exempt.’
The triple lock time bomb:
‘The triple lock is basically an unexploded bomb beneath the public finances, because under it the state pension can only increase relative to average earnings. It can never fall back. And of course, average earnings are what are paying for the state pension. So you cannot have a state pension which runs ahead of average earnings, because it will eventually break you… Cutting the state pension by 10% would really just take it back to where it would be now if we hadn’t had the triple lock and pensions had increased with average earnings instead… Obviously, that is not an easy policy to sell. It’s the sort of policy which you can only really sell during a time of crisis, but I say we are rather approaching that, and I think the sooner we accept that, the better.’
Can you win votes for cuts?:
‘It is politically easier to spend money than it is to raise it. That’s why we have a deficit… I don’t believe it is impossible to sell a programme of cuts to the UK public. A UK government did that once, in 2010 – the coalition… The Tories were elected again in 2015, in spite of Labour running an anti-austerity campaign against them. And when Labour had an internal review of its failure to win that election, carried out by Jon Cruddas, the Labour MP for Dagenham, he came to the conclusion that Labour had lost not in spite of its anti-austerity campaign, but because of it – because the public at that stage still wanted the government to balance the books.’
The Tories need to think bigger:
‘In 2010, David Cameron’s Conservatives came to office promising to eliminate the deficit within five, six years. What Kemi Badenoch has suggested so far is to reduce the deficit by £23 billion. The deficit last year was something like £133 billion, so chopping £23bn off it is a long, long way short. It’s under-ambitious, I would say… We have to have spending cuts ahead of tax cuts. Tax cuts are, in the end, where you want to be. But you shouldn’t be starting there.’
