The UK national debt is a ball and chain around the ankle of our society currently. It is an unnecessary burden which will be passed on to future generations, and I believe that the time has come to put aside party politics aside and agree to a long-term plan of debt elimination.
The recent tweet by Conservative MP Daniel Kawczynski (see below), highlighted three things for me. Firstly, it demonstrated the sheer idiocy of some of our elected representatives; secondly it showed just how far the buck-passing, playground bickering blame-game has embedded itself in Westminster culture; and thirdly, and most importantly, it also showed the extent to which the UK is saddled with enormous debt.
Amongst the retweets and the laughing, it is easy to forget that the topic of the tweet is where the importance lies, not in the ill-judged tweet itself. The growing national debt is a serious issue and it needs addressing.
At the time of writing, UK debt stands at a figure of over £1.8 trillion, with this figure being approximately 85% of GDP. That means that if the UK were a person, and it wanted to pay off all its debts in one go, it would need 85% of its annual salary in order to do that.
Such a level of debt, if spread evenly across all members of society, means that each individual man, woman, and child in the UK – a country of 65.1 million people at last estimate – owes over £27,645.
As a society, and as a civilisation, we are addicted to living beyond our means, wanting the future yesterday, but refusing to pay for it until next week. We eat and drink more than we should, we consume three times more than what is sustainable for the planet, and we routinely take out loans and credit cards to pay for the unnecessary over-expenditure.
The country is a reflection of the people. Or perhaps, it is more a role model. Whilst the public are told to “tighten their belts”, and be more financially responsible, the government are collecting more loans, increasing the national debt, and wasting over £70 billion a year just to cover the interest.
This figure means that each household in the UK pays approximately £2,000 a year in taxes, not to pay for the debt, but simply to maintain parity, preventing the national debt from getting any higher.
And to put that £70 billion in to perspective, that figure could pay for:
– 5,000 new schools (estimated to cost on average approximately £14 million each) OR
– between 137,254 and 291,666 new doctors (depending on the cost and levels of training) OR
– 368,537 new homes (according to 2011 figures for new-builds) OR
– over 23 billion pints of lager
Now, I am not an economist and I don’t understand the intricacies of the complex system of debt, bonds, borrowing, gilts, and other factors, but being free from debt seems like an entirely sensible approach to managing public funds in my opinion.
I would much rather have my tax money, and that of my fellow citizens, go towards paying for essential services and being invested in future developments and programs, than seeing it year-after-year being spent to keep our heads above water in a sea of debt.
The problem of debt
It is debt, and the wider economic system, that is the focus of an article by Jason Hickel that ran in The Guardian in November 2016. Here, Hickel argues that we do not only need to change how we measure success and progress within a society (GDP), but also the root cause of this measurement itself: debt.
Hickel states: “Debt is the reason the economy has to grow in the first place. Because debt always comes with interest, it grows exponentially – so if a person, a business, or a country wants to pay down debt over the long term, they have to grow enough to at least match the growth of their debt. Without growth, debt piles up and eventually triggers an economic crisis.”
This requirement for growth then displaces all other considerations and fuels harmful policies around the world. Human rights are bypassed, wars are fought over resources, and the climate is perhaps irreparably damaged. And whilst all these considerations are largely discounted in order to fulfil the necessary growth quotas, inevitably, at some point the growth will slow and then halt.
Nothing lasts forever. Perpetual growth is an impossibility, and chasing such a fiction will only lead to disaster.
The fetishisation of GDP as a measurement of progress turns politics into nothing more than a money making scheme. First and foremost, politics and governments are about improving people’s lives, not making more money. And though the two are not mutually exclusive, all too often profit is put before people and planet.
Though I completely disagree with the proposed methods of achieving it, I do realise the logic in, and support the desire that was held by the Conservative-Liberal Democrat coalition government to balance the books and work towards reducing the UK debt. With George Osborne as Chancellor, a timetable was set whereby debt as a percentage of GDP would begin to fall in 2016/17. Osborne and the coalition missed this target.
They recalculated the date and settled on 2018/19, and missed this target too. Again they recalculated and pushed the date back once more to 2020. This target too was missed. Eventually, the pledge was abandoned altogether.
The scale of Osborne’s complete failure is perfectly illustrated by looking at the UK debt figures when he entered office and comparing them to when he left. Rather than lower the debt, it grew massively. The Independent reported that the national debt grew by £555 billion under Osborne, meaning that under his stewardship, he was responsible for the creation of more debt than “every Labour government in history“.
(and it seems Osborne has been handsomely rewarded for his failure recently gaining a six-figure paycheck for 48 days work, on top of his salary as an MP, and the £800,000 he receives for his speeches)
So the national debt is largely ignored, the interest continues to grow, the economy is continually whipped and beaten to blindly rumble forever onwards regardless of the potential consequences, and the public and planet seem to suffer as a result.
Appalled by Osborne’s proposals at debt reduction, embarrassed by his results, and determined to prove that my own desire to eliminate the debt is achievable, late one night I decided to research and calculate the possibilities.
(This isn’t the first time I have used a politicians failure with numbers as an excuse to do some calculations of my own. See here on Natalie Bennett’s car crash interview about funding new houses.)
My aim was to calculate how long it would take to pay off the interest on the debt, the debt itself, how much it would cost to do that, and how we could afford such a campaign.
Tackling the debt
In our “democracy”, with two parties fighting one another for control of the steering wheel every five years, any long term vision or commitment is unlikely to be met.
Not only is clearing the national debt an unattractive policy to woo a swing voter, it is also not going to result in any immediate gain. And in this culture of short-termism – quarterly targets, five-year governments – why would anyone look a decade or two into the future? If you borrow money now, things will be good, someone else can sort out the debt further down the line, when you’re no longer around to see the damage of your short-sightedness.
In what could possibly be the least sexy manifesto pledge ever written, I would like to see a party commit to eliminating the national debt. The buck-passing stops, so too the Westminster blame-game, the future generations should not be burdened with our excesses. It is time to live within our means, and use our taxes as investments, rather than interest repayments.
My late night, back of a fag packet calculations produced the following results: a three-decade blueprint for getting the UK out of the red.
I took the £1.8 trillion figure as the basic starting point, and estimated that we should look to repay £100 billion every year to bring this down. In the first year, this figure would cover the £70+ billion annual interest, and approximately £30 billion of the actual debt. By the end of the tenth year, this £100 billion would cover the £60+ billion annual interest, and approximately £40 billion of the actual debt. (the interest is set at 4.375% of the total debt figure and so as the total debt figure decreases, so too does the interest on the debt).
In total, by the end of the thirty-third year, the debt would have been eliminated, thanks to a total debt repayment figure of almost £3.3 trillion (32 payments of £100 billion, and one final payment of just over £80 billion).
The national debt and the current deficit?
Ideally, I would have liked to start from a clean slate in terms of tax revenue and government expenditure, but seeing as I don’t have the time or the expertise to evaluate every income and expense currently, I used the present situation as a starting point and worked from the figures inherited from the Conservative government.
(Unfortunately, this does mean that all of the appalling cuts to welfare, local councils, education, and so forth, are still in existence, and if I were to have more time and information, I would reverse these and recalculate my debt repayment figures and schedule. If free university, more funding for the NHS, and better social security meant that the debt would be repaid in 40-years as opposed to 33, then so be it.)
As it is, I stepped straight into the Conservative governments shoes and encountered an additional problem.
Not only is the national debt £1.8 trillion, and not only is the interest on this debt around £70 billion a year, but the current UK budget is also running a deficit. That means we are currently spending more than we are getting in.
If the national debt were your bank account in the red, interest is added to this each year, and your annual salary is lower than the amount you find yourself spending each year, therefore the debt in your account is increasing.
Figures from the fiscal year ending March 31st, estimate that the current deficit is £67.6 billion. So before we even look at the debt and its interest, we need to make sure that our incoming can cover our outgoing.
An additional £67.6 billion is needed to break even, and considering the government is only currently paying £39 billion towards paying off the debt, we would need an extra £61 billion to reach the £100 billion a year debt repayment figure I mentioned earlier.
So we need £67.6 billion more each year in order to break even, and an additional £61 billion to reach our target annual debt repayment figure. This means that £126.8 billion needs to be raised/found.
Where will the money come from?
The biggest income source would be from recouping the money lost through tax evasion, tax avoidance, and taxes not paid. A 2014 report by Tax Research estimates that some £122 billion is currently being lost this way (tax evasion £85 billion, tax avoidance £19 billion, and taxes not paid £18 billion.)
As this report is now three-years out of date, it is likely that the figure is higher, but we won’t speculate as to what it may now be, and will instead use the £122 billion figure cited.
In order to reclaim this money, the staff cuts to HM Revenue and Customs (HMRC) would be reversed and legislation would be changed or drafted so that this issue would be seen as a priority and would have the legal framework needed to make it a success.
Currently, there are 56,000 staff members at HMRC, but in 2004/05 there were 92,000. Staff numbers need to increase substantially if the £122 billion is to be recouped and better investment in the department would be essential. The budget for the department would be doubled to £7 billion so that more staff could be hired and the majority of the tax money could be found.
It is unrealistic to expect 100% of the tax money being found, so I will settle for 85% of the money, with an additional £3.5 billion being needed as an investment in the department so that this figure could be achieved. This would give us an additional £103.7 billion, minus the £3.5 billion invested, resulting in £100.2 billion towards the £126.8 billion needed.
(By way of comparison, and to show just how economically misguided and ideologically driven the Conservative government’s assault on welfare truly is, whilst the taxman misses out on £122 billion in unpaid taxes, just 1% of this figure, £1.2 billion, is lost on benefit fraud.)
In November 2016, the British Medical Journal called for the legalisation of drugs in the UK, stating that the “war on drugs” has been a failure. The UK is already lagging behind the likes of Barcelona, Amsterdam, Uruguay, Costa Rica, the USA, Portugal, Switzerland, and many others, and because of our archaic policy on drugs it is harming both the population and the nation’s finances.
A 2009 study by the think tank Transform, estimated that the UK government would gain an additional £10.8 billion if it were to legalise drugs. More recenty, a 2016 article on OpenDemocracy estimates that if drugs were to be legalised nearly £14 billion a year would be saved. And writing for The Telegraph earlier that year, Christopher Snowdon, the Head of Lifestyle Economics at the Institute of Economic Affairs, even demonstrated how this legalisation would look.
I am unsure whether the £14 billion figure includes tax revenues from drug sales themselves, or whether that is simply savings made on healthcare, policing, and the like. For the sake of this piece, we will assume that it does include the additional tax revenue generated from drug sales, and we will add it to the money recouped from HMRC.
£100.2 billion + £14 billion = £114.2 billion
Leaving us to find just £12.6 billion a year.
Inequality has reached unprecedented levels both in the UK and globally, where 8 people are said to own as much as 50% of the planet’s population. I am a firm believer that those with the broadest shoulders should carry the heaviest burden and as child poverty, food banks, and homelessness soared after the financial crash of 2008, so too did the wealth of the highest earners.
Such a situation cannot be allowed to continue and in attempt to help rectify it I would increase the income tax for the highest earners. The 50p tax rate would be reinstated, helping to raise between £2.4 billion and £3.2 billion each year.
If necessary, this tax rate could be increased further. In the late 1970s the top rate of tax was over 80%, it then came down to 60%, and now stands at 45%. The Office of National Statistics admits that direct taxes, such as income tax, do help to reduce inequality, and the Equality Trust has found a “compelling case that a higher top rate of income tax could reduce high pay and, in doing so, deliver wider economic and social benefits”. As well as this, it can also provide additional revenue for us to reach our debt reduction target.
Taking the average of the two figures cited above, raising the income tax rate for the highest earners could contribute an additional £2.8 billion each year.
£114.2 billion + £2.8 billion = £117 billion
Leaving us to find just £9.8 billion more each year.
Financial Transaction Tax (Robin Hood Tax)
With supporters in Germany, North America, the UK, Italy, and Spain, the Financial Transaction Tax – or the Robin Hood tax – would be a small tax (0.1% or 0.01%) on specific financial transactions. It has over one million supporters online, has the backing of Oxfam, Comic Relief founder Richard Curtis, and 350 leading world economists including Jeffrey Sachs and Nobel Prize winner Joseph Stiglitz.
And despite scepticism by critics and reluctance by most governments, the initiative stands up to scrutiny with the International Monetary Fund, the European Commission and the Gates Foundation all having found unilateral transaction taxes “feasible”.
A 2013 study by the Institute for Public Policy Research found that if the UK were to adopt a Robin Hood Tax as part of a wider Europe-wide initiative, it would benefit from an increased revenue of £20 billion each year.
This additional £20 billion each year, gets us well over our targeted figure, and even provides a surplus of £10.2 billion each year which could be invested in other areas – the NHS for example, which is currently suffering from deliberate under-funding and is in need of an additional £2.5 billion each year – or it could be used to reverse the austerity measures implemented by the previous government.
As ever, what does and does not happen in Westminster is an issue of political will, not financial necessity. Austerity was a choice, just as debt is a choice, so too is failing to invest in a Green New Deal, or providing big business with billions of pounds of subsidies, or renewing needless nuclear weapons. The money is there, it is just a matter of what we decide to spend it on.
As always, if you have liked what you have read please Share, Like, Comment and/or Reblog.
Don’t forget to check out the related articles.
And please Follow for all the latest updates and posts.