We need open debate on nation’s finances
LET’S say you have a mortgage. That’s not too hard for a huge number of people who do. But then let’s say you actually own the bank you borrowed your mortgage payment off.
Don’t ask why you’d want a mortgage if you owned a bank, I am trying to come up with a convoluted and simplistic explanation here.
But anyway, you own the bank, which lent you money to buy your house at 0.1% interest. Oh, and with a repayment term of... infinity.
You could wipe out the debt with a wave of your hand, but you don’t want to besmirch the good name of the bank, so you agree to pay it back anyway.
But if you’d had a particularly rough year, just like the one we have just had, wouldn’t you push some of that mortgage payment down the road a little bit. You know, shore up your finances, maybe give yourself some breathing space from the awful time you had just endured?
I am saying all this, as it is in relation to our national debt. While many people – myself included – have previously thought of the debt as something almost external to the country and best off paid up in full as soon as possible – a bit like your mortgage – it turns out that this comparison of household economics with that of UK Plc is wholly incorrect. I was disposed of some of my erroneous views on macro economics by reading an explanation by a Professor of Accounting, Dr Richard Murphy.
Dr Murphy’s lengthy thread was shared on Twitter in response to the question of the national debt, and Chancellor Rishi Sunak’s Budget announcement suggesting that it has shot up because of the pandemic, and needs to come back down.
That would seem sensible to most people – including me – until you are told how the system really works.
The point was made on BBC’s Question Time that 92% of the additional borrowing which the Government has made in order to deal with the pandemic has come from the Bank of England. Which, although independent, is in fact an arm of the Government.
So the money to prop up the UK economy at a time of unprecedented need has come... from ourselves.
It is effectively a promise to pay ourselves back at a certain point in the future. Yes there are costs, but borrowing is at a historically low level, meaning spending now is almost certainly cheaper than in the future. Like an investment.
There are more reasons which the Government does not simply give everyone a million pounds, such as inflation, as the value of money has to hold a relative worth compared to what it can be used to buy. It’s no use being a millionaire if a loaf of bread – let alone your dream house – costs £750,000.
Yet using the national debt as the reason to embark on an austerity drive is not, as it would appear, to be a necessity. It is a political choice.
Just as we can choose to invest in our homes, and maybe make some repairs, instead of paying off our mortgage early, the Government can spend on services and schemes that will offer more value in the future.
Mr Sunak has, as recently as last year, appeared to back the idea that a ‘levelling up’ agenda – investing in areas of the country which could drive growth, such as the South West – was far better than any austerity.
Focusing on the ‘green’ economy in order to cut carbon emissions, such as by investing in clean energy technologies, is another way that we can create more value by spending instead of cutting.
I expect my explanation has some rather large holes, and that offering a facetious analogy is not ideal, but maybe this could be the start of a debate so that we all understand a little more about our national finances. Answers on a bank note.
It’s no use being a millionaire if a loaf of bread, let alone your house, costs £750k