I genuinely don’t understand why this issue isn’t on the front pages of all the newspapers and discussed in news talk shows every week.
The money is running out (arguably already has run out) in this country, and yet we seem to be ignoring it.
At least, our government seems to be ignoring it.
Over the last 12 months our government borrowed a massive £151.9bn which is £20 billion more than the previous year, and much more than the Office for Budget Responsibility (OBR) had forecast. Last month alone, our debt went up by an eye-watering £16.4bn, the third highest March figure since records began
Sounds like big figures for the country but nothing that immediately affects us as individuals.
Not so. A few months ago I interviewed former Conservative MP, Steve Baker, about the fact that he had worked out (using OBR figures) that the country’s ability to pay its obligations in benefits, state pension, NHS etc will fail in about 15 years time.
He based this on the amount of money that the OBR had worked out we will have to pay out to those receiving benefits, including the growing number of retirees and the financial burden that is likely to increase with the NHS, compared to the amount of money the State is likely to pull in in taxes going forward.
The result is a dispiriting gradual collapse of income and an inexorable increase in state dependents over the next decade or so which sill culminate in a situation where there is simply not the money coming in to cover the outgoings. Bankruptcy.
You can see how Steve worked this out in the MoneyMagpie invest podcast that I did with him here.
So why not just print the money to tide us over, you might ask?
Well we have been doing that – in spades – and the result has been inflation and yet more inflation. Not only that but, frankly, one can’t keep trying to defy gravity with one’s currency. Money-printing (quantitative easing) is only really a very short-term solution to a bit of an emergency. It isn’t something – or shouldn’t be something – that is used on an ongoing basis. Do it for too long and money loses all of its value, not just some. We are getting close to that point with our fiat currency, the pound. It’s the same with the dollar, the euro, the yen and more.
We have to balance the books. That’s what Trump and his team are trying to do with the $35 trillion debt that they have. Their debt to GDP ratio is 120%. Ours is a comparatively virtuous 100%. Other nations are worse – France is at 112%, Italy at 180%, Greece is around 200% and Japan is 260%. Economists say that around 70% of GDP is the upper limit for a country’s debt burden not to crash the economy. Clearly that ship has sailed for many developed countries now, including ours.
Essentially the West is drowning in debt because it has been living beyond its means for too long now.
Much of it is fixable if we the people are willing to give up many of our benefits…which of course we are not. Just look at what happened in France last year where the government tried to put cuts through in the Budget. It created such a stink that the government had to collapse.
I spoke to a personal debt adviser, Andrew Sykes, at the beginning of April and was shocked to hear what he had to say about the benefits system in the UK.
As you can hear in this podcast he agreed with me that the ‘Awful April’ bill rises would be very hard for many of his working clients who were already struggling. But, he added that we have a two-tier benefits system (everything about the UK seems to be two-tier now!) where, while some are really struggling, others are doing excessively well out of the system. He added that working people are being taxed even more each year to cover the cost of often very ill-advised payments.
For example, he cites one mother who was referred to his Yorkshire-based debt advice centre by her kids’ school. It turned out that she was being paid £66,000 in benefits each year plus a raft of freebies including free school meals for her six children. Another woman was getting £56,000 in tax-free benefits.
At the same time the PIP scheme seems to be running out of control. He mentioned one woman, a recovering alcoholic, who had been advised by her DWP consultant that she could get a new car if she said she was anxious about going on public transport. Of course she said she was (who wouldn’t?) so she got a brand new Ford Fiesta. Another woman claimed she couldn’t go on public transport because she was self-conscious about her acne so she got a new car.
The mum of a friend of mine works in the benefits system and mentioned to him last week that she had a client who was embarrassed at the fact that she had an inverted nipple so needed a car so that she wouldn’t have to take public transport. She got one.
These are just a few examples of what is happening to our tax money now. Money was given away like water during the Conservatives’ ‘reign’- particularly with the eye-watering profligacy of the lockdown era – but the fountain has speeded up since the Labour party got in.
I now think that Steve Baker’s estimate of 15 years before we reach economic Armageddon was far too conservative. I give it 6-7 years, unless Labour reverses its policy and sends round an edict to all benefits offices demanding that they tighten up the way they operate. There are many who need help, particularly after the above-inflation rises in bills that we got in April, but the system is such, now, that many who should not have so much money are encouraged to take more and more.
I don’t blame the individuals who are over-benefiting from the benefits system (well I do in some cases) but I most certainly blame the system.
If it is not changed, and changed quickly, we will hit a wall and then we will have to decide where the cuts will fall, not whether we should have some. Whoever is in power when that happens will have a hell of a time. I don’t envy them.