I'm not the only person to think that last week's Autumn Statement marks a shift in economic outlook by the Government. This may seem arcane, but it says a lot about where Britain is as a nation.
You'll recall that in the dim and distant past of his Chancellorship, George Osborne had plans to bring down the deficit to zero by the end of this Parliament. His successor, Philip Hammond, has abandoned these plans. There will be a number of reasons for this. The first might well be the economic uncertainty of approaching Brexit - the last thing the UK needs is an avoidable recession caused by a further squeeze on HMG spending.
It's the other reasons which are interesting though.
One is that the Government thinks that it can stand to borrow a bit more in an era of historically low rates. This is what Labour has been saying for years (although they have also, incoherently, been criticising the Tories for borrowing too much). Another is that a significant part of Osborne's plan for getting borrowing down lay in bearing down on tax credits, the in-work benefits introduced by Gordon Brown. Many Tory MPs, fearful at the reaction of their constituents, refused point blank to countenance this and the plan was quietly dropped.
I can't think of a better example of the ratchet effect of public spending - giving benefits to people is very easy; taking them away is very difficult.
What will the effect be of Hammond's purse-string slackening? The obvious one is that as the deficit remains stubbornly high our stock of debt goes up still further. Hammond's spending is calculated to take Britain's stock of debt to 90% of GDP, the point at which, according to some research, interest repayments start to impede an economy's ability to grow. Interest rates on bonds are low now, but in the future borrowing will have to be rolled over, at rates which are unknown but could scarcely be lower than at present. Every extra £ borrowed is a gamble on future interest rates.
The proposition that a state cannot go on living beyond its means forever is susceptible to the observation that provided GDP (or more accurately tax revenue) continues to grow more quickly than accumulated debt it is likely that markets will continue to lend at affordable rates. The trouble with this calculation in the case of the UK is the reverse is happening. Public debt is rising faster than tax revenues. In other words, we are spending an ever increasing amount of our national income on interest payments.
So the situation is that with a narrow but serviceable Tory majority in the Commons, the opposition in disarrary, there are insufficient fiscal conservatives at Westminster to grasp the nettle. We are back in the land of Please-Lord-make-me-solvent-but-not-yet. To a return to a point made many times on this blog, we cannot afford to pay for our public services. We appear to be intent on continuing to live unaffordably forever, the pain of living within our means being too great for it to be contemplated.
This state of affairs will continue until the pain of living beyond our means is even greater. I shudder to think about what our country will be like at that point.
