The economy is mired in debt, which is increasing. At the end of April 2011, public sector net debt (excluding financial interventions) was a record £910.1 billion, up from £889 billion in December 2010. If the £1.342 trillion we paid to rescue the banks is included, the total was £2.252 trillion, up from £2.18 trillion at the end of April 2010.
Debt is fine when used to invest in manufacturing industry to increase resources. But the wrong kind of debt, like loans to property developers and banks, puts funds into the wrong parts of the economy, creates a burden and inflates the property bubble.
The deficit is the difference between what the government spends each year and what it raises in taxation, the difference being made up by borrowing. Average annual public spending was lower in the years 1998–2010 than in the Thatcher years 1980–1997 (down from 40 to 38 per cent of GDP). Budget deficits arise from either too much spending or too little taxing and are likely to be worse when taxes are cut for high earners, corporations and banks. Each deficit adds to the debt stock, the nation’s long-term mortgage.
Before the crash and bailout, the national debt was 35 per cent of GDP in 2008, lower than corporate debt (250 per cent of GDP) and private debt (70 per cent of GDP). After the bailout, the national debt was 52 per cent of GDP in 2010 – still the second lowest of the G7 countries.
Burdened by increasing debt, Britain has weak economic growth and rising inflation – “unexpected” by the IMF, though it pointed to the VAT increase as adding to inflation. But its annual report warned of “significant risks” to inflation, growth and unemployment. It now forecasts growth of 1.5 per cent in 2011, down from its November 2010 forecast of 2 per cent. 4.83 million people want work and there are 3.3 million workless households. The lowest two-thirds of incomes are stagnant.
We have had under-investment for decades (investment per worker is 40 per cent higher in France and 60 per cent greater in Germany than in Britain). And we have too few skilled workers (20 per cent of German and a third of French workers have low skills, but 55 per cent of British workers).
Finance and banking have created almost no jobs over the last 15 years, despite the sector’s greatly expanded share of output and profits. While finance accounted for a tenth of national output in 2007, it provided only 6 per cent of national employment. In contrast, manufacturing provided 13 per cent of output, but 11 per cent of jobs. So manufacturing generates 44 per cent more jobs per unit of output than finance.
Manufacturing output fell by 1.5 per cent in April, the worst drop since January 2009. Overall industrial production fell by 1.7 per cent. Car production fell by 7.6 per cent; machinery and equipment manufacturing also fell.■