I have great respect for Ed Conway, until recently Economics Editor of the Telegraph, who certainly knows a great deal more about economics than I do. Nonetheless, I believe I may have spotted a rare solecism in his piece for the Sunday Telegraph last weekend (Aug 21st).
He says “Whichever way you look at it, Britain is enormously over-leveraged — and although we are gradually paying off that debt, its scale is so great that the experience will be a long and drawn-out one”. Admittedly, these are not his own words. He is, he says, quoting Andy Haldane, the impressively-titled Bank of England’s Executive Director for Financial Stability. But he quotes him with approval, and apparently with agreement.
Of course the first statement is beyond question. Britain is indeed over-leveraged. But the second — “we are actually paying off that debt” — is not. George Osborne has adopted (thank heaven) a fiscal consolidation plan designed, over the life of a full parliament, progressively to bring down the annual deficit. And the dispute with Ed Balls is not about whether this needs to be done — which is agreed by all — but whether we should do it as quickly as Osborne plans. Yet Osborne’s plan is not very quick — it will only bring the annual deficit down close to zero by the end of this parliament.
There will therefore be a large (but hopefully declining) annual deficit every year of this parliament. So we are not “paying off the debt”. We are, in fact, increasing it until 2015. Market confidence in UK sovereign debt has been restored, not because we are paying off the debt, but because we have a credible plan to increase it more slowly.
Too many people in politics seem to believe that the austerity plan forced on us by the dreadful legacy of the Brown Terror is enabling us to pay down debt. It is not. It is merely enabling us to grow it more slowly.
Sooner or later, of course, it is important that we should indeed start to pay down the debt. But we can only achieve that when we achieve an annual surplus — not an annual deficit. And that looks like a job for the 2015/20 parliament. Look forward to a decade of austerity.