It is evident

It is evident that the UK is in a difficult situation. Much of what we consider to be our “way of life” is hanging in the balance, which is why our politicians seem so uncommonly aligned to a very similar course.

The size of our public debt means that we are rightfully concerned about interest rates on Treasuries. As we continue to rack up an additional 5%+ a year of GDP in extra debt, only the anomaly of historically very low interest rates has made it possible to continue without more drastic changes. Pretty much all of the parties in Westminster understand the situation, and are fearful of making any suggestions that UK PLC will deviate from a course of austere spending control.

What no one wants to deal with is that we really don’t have spending under control, and every pressure we see ahead (ageing population, healthcare costs, energy infrastructure, pensions) looks likely to push spending up, not down. Borrowing an additional 5%+ of GDP a year is not “under control”, especially when you’re already at 90% of GDP. The current government’s budgets don’t even forecast making a dent in total public debt before the end of the decade.

The end of QE is coming, even if the UK and Europe want to continue theirs, the USA’s QE dwarfs them, and as it is retracted over the next two years interest rates on debt around the world will rise. UK 10 Year Treasuries have already gone from 1.7% to 2.3% in the lead up to the announcement that the US Federal Reserve will start “tapering” their QE late this year or early next. Historically the UK has paid a 10 year interest rate on its debt closer to 5%, and that simply means that as debt revolves in the coming years the cost of servicing our debt will rise. This extra cost of debt servicing (minimum +£5B/year, more likely +£20B/yr) will easily eat up any of the ‘savings” being proposed by any of the major political parties today (ConDem headline savings: £11B/yr).

If, as it seems evident we will, we go into 2016 with 100% public debt/GPD, rising interest rates, and no plan to bring the total debt down for another 5 years, most investors will see UK Treasuries as one of many junk bond opportunities, not a safe haven. Nothing the ConDem coalition, or the Labour opposition, proposes suggests that our situation in 2016 will be anything other. Assuming that investors hold fast through the 2015 election, for lack of better options globally and because humans are naturally optimistic, then the next government will have to have a pretty radical budget plan ready to roll, or 2016 is going to see the UK joining the list of “bankrupt European nations that let their social costs run away from their economic realities”.

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LIFE is the only political movement in the UK with a plan to address this potentially catastrophic situation.

LIFE will convert the benefits system into a universal services model, raise taxes, and create significant economic growth. Not because our policies are magic, just because we understand economics. We understand that removing the floor on monetary unit labour costs stimulates very significant micro-economic activity, activity that is currently suppressed by the monetary benefits welfare system.

Delivering social security as universal services also makes it politically possible to broaden the tax base, because the equivalent of a ‘living wage’ is guaranteed. Once the services are up and running they cost no more to deliver than the old benefits system, but they deliver economic advantages that the benefits system cannot: the liberation of micro-economic activity, the abolition of the minimum wage, and the effective socialisation of a significant portion of the cost of delivering real social security (absorption of cost by the population as part of the implicit barter for social security).

When LIFE is elected in 2015, we will have a practical economic plan that constrains public spending, increases revenues, produces sustainable economic growth, and provides a reasonable medium-term path to total debt reduction.

It is evident that the Westminster incumbents, of all shades, do not have a plan, and can’t imagine a plan, that will save the UK from junk status in 2016. This is serious stuff: the future of the British way of life depends on a credible budgetary and economic plan for the 2015 General Election.

To quote Lord Adonis, “Once you have an economic plan, the rest, of course, is ‘detail’, essentially,…”.

 

2 thoughts on “It is evident

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  1. Danny Alexander, on this morning’s Andrew Marr Show, “We’re squeezing down on spending, even more than we have to to deal with the deficit…”Really? I assume that in his role as Chief Secretary to the Treasury, Mr Alexander knows better than this. I don’t have to say what that makes him.The real tragedy of this kind of inane, breast-beating public pronouncement is the confusion and delay that it causes in the public’s mind. It is pure political posturing, and doing nothing to advance the public conversation.

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