RUTHFULLY YOURS

Some readers feel I’m laying it on a bit thick about our debt levels. Well, have a look at the charts below, which come from the Bank of International Settlement (hat-tip, Tim Clougherty). Let’s start with the three forms of debt in Britain, viz personal, corporate and government liabilities:

There comes a point when the a country’s overall indebtedness begins significantly to reduce its growth. The Bank of International Settlement tells us what this point is: around 90 per cent of GDP for government and corporate debt, 85 per cent for household debt. Now here’s the bad news. In Britain, government debt is 89 per cent of GDP, company debt 126 per cent and household debt 106 per cent. We are, in other words, in a downward spiral: as growth slows, debt increases.

Another way of looking at it is to tally up our total  liabilities over the past 30 years. If you’re of a squeamish disposition, look away now:

You might object, in a Matt-Ridley-Rational-Optimist spirit, that things never turn out as badly as the doom-mongers had forecast. The trouble with all these extrapolations, the great Ridley points out, is that they assume that no one will do anything to avert the calamity. Isn’t it at least possible that a government will take the necessary steps to balance the books, scrapping some welfare entitlements, pruning the public sector, presiding over a terrible épuration of the quangos?

In theory, yes. In practice, you must be joking. In Britain, as in every Western state, the primary business of government is the employment of its employees. Cutting the state payroll? Look at the hiring spree at the DWP, revealed by an FoI request from the TaxPayers’ Alliance. There are 12,790 more staff on the department’s books today than 12 months ago: an increase of 13.3 per cent.

Bonfire of the quangos? If only. Whenever a quango is closed, a new bureaucracy springs up to exercise its functions. Like the hydra of mythology, the standing apparat that rules Britain sprouts two head for each one that is lopped off.

It’s not that ministers want to keep expanding the state. They can read the figures as well as the rest of us. The trouble is, they can’t do anything about it. They find themselves encased in a vast bureaucratic machine, tugging at levers which have worked loose, stabbing at buttons long since disconnected. On the rare occasions that their instructions don’t fall foul of the Human Rights Act, the Equalities Act or EU law, they are simply disregarded by the civil service or struck down by some activist judge.

Now here’s the truly calamitous news. Like every developed country, we have an ageing population. The number of people of working age will shrink as a percentage of the total, and the number of pensioners will increase. Other things being equal, this will cause a significant deterioration in our national finances. The chart below (hat-tip, Adam Smith Institute) shows what will happen if things carry on as now (red line), if the government manages to reduce spending by one per cent of GDP every year from 2012 (green line), and if the government compensates for the demographic effect by significantly raising the retirement age and/or reducing pension entitlements (blue line).

Now a debt-to-GDP ratio of 300 per cent, let alone 500 per cent, is wholly unsustainable. The single largest item of government expenditure would be interest payments. Except, of course, that there would be no government by then, not as we now know it.

In the run-up to polling day, David Cameron summed it up in six words: “We can’t carry on like this.” Spot on, prime minister. Any ideas?