Transcript Britain is broke – we can’t afford to invest”

“Britain is broke – we can’t
afford to invest”
Ellie Mae O’Hagan, The Guardian
Howard Reed, Landman Economics
nef (the new economics foundation)
The myth
“Britain has maxed out its credit card. The level of debt
is too high, and the cost of servicing that debt risks
bankrupting the UK. We’re in real danger of heading
the same way as Greece.”
nef (the new economics foundation)
In the wild
“We want to offer people a choice between… a Labour
Government that has bankrupted Britain again, and a
Conservative Government that will build confidence in Britain's
future.”
– George Osborne, January 2009
“The British Government has run out of money.”
– George Osborne, February 2012
“The more government borrows . . . the less confidence there
is... and when confidence in our economy is hit, we run the risk
of higher interest rates.”
– David Cameron, June 2010
nef (the new economics foundation)
The reality
• By historical or international standards, the national
debt is not high
• The cost of servicing Britain’s debt is lower than at
any point from 1945 – 2000
• Britain is not Greece – we have our own central bank
nef (the new economics foundation)
In reality:
By historical or international standards, the national debt is not high
nef (the new economics foundation)
In reality:
By historical or international standards, the national debt is not high
Source: http://falseeconomy.org.uk/cure/how-big-is-the-problem
nef (the new economics foundation)
In reality:
The cost of servicing Britain’s debt is lower than at any point from 1945 - 2000
nef (the new economics foundation)
In reality:
The cost of servicing Britain’s debt is lower than at any point from 1945 - 2000
nef (the new economics foundation)
The reality: Britain is not Greece – we have our own
central bank
nef (the new economics foundation)
What about the ratings agencies?
Do we need to worry about a UK downgrade?
NO
• US downgrade in 2011 made no difference to borrowing costs
• Same true for UK in 2013
nef (the new economics foundation)
It’s precisely the right time for the UK
government to borrow to invest
From
Alex Hern’s
New
Statesman
blog:
‘Snappy
comebacks to
stupid
questions: the
eternal
undeath of the
credit-card
analogy’
“Here are just some ways borrowing more money can mean borrowing
less:
• You are unemployed. You have great ability, but few qualifications.
You take out a career development loan to pay for post-secondary
education. You get a well-paid job as a result.
• You are unemployed. You have ample qualifications, but no smart
clothes. Before the first of a string of job interviews, you borrow
enough to buy a suit, ensuring that you win gainful employment and
don't have to borrow money to eat.
• You live in a 1950s prefab. With no real protection against the
elements, an uncomfortable proportion of your monthly income goes
on heating. You borrow money to pay for insulation, your
expenditures drop, and you use the extra to pay off credit-card bills.
• Annual income six pounds; annual expenditure six pounds sixpence.
Result: misery. You borrow some money to put solar panels on the
south-facing roof of you Guernsey house, reducing your spending on
electricity. Annual income six pounds; annual expenditure five
pounds, nineteen shillings and sixpence. Result: happiness.”
nef (the new economics foundation)
In summary
“Britain, then, is not “broke”. The national debt is not
high by historical or international standards, the cost of
servicing the debt remains manageable, and Britain
retains the flexibility of having its own central bank. As
for Britain not being able to afford to invest, the truth
is the exact opposite: with the cost of borrowing at
historic lows, Britain cannot afford not to invest.”
nef (the new economics foundation)