The state of the public finances is a national disgrace. Over eleven years of Labour administration too much government borrowing has funded current consumption. Instead of building a secure future we are borrowing from it and condemning future generations of Britons, some still to be born, to pick up the bill for the cost of current welfare, healthcare and pensions expenditure.
It is an approach which is neither prudent nor sustainable. It falls to Conservatives to condemn this cavalier approach to public expenditure and show the nation that there is a better way forward.
The recent banking bailout following the credit crisis has provided the government with an alibi for exorbitant levels of public debt which were already spiralling dangerously out of control. Public sector borrowing was due to reach £43 billion in the current financial year – we shall now be lucky to avoid doubling that sorry figure. Next year the total may well exceed £100 billion; that is around £300 million spending in excess of tax receipts each and every day of the year.
Just as it has been difficult for a bewildered public to grasp the true meaning of the wild fluctuations in the stock market in recent weeks, I fear that it will now be unaware of the seismic implications of the unprecedented level of government debt now locked into the system.
We must ringfence the billions accrued for the banking bailout from the enormous sums that were already on – and indeed off – the balance sheet. The new spirit of the age should be for value for money out of the public pursue – instead the idea of big government as an ever benevolent cash cow seems to be entrenching even further.
Remarkably, a narrative on the need for greater austerity has really
not yet emerged. Whilst Conservatives no longer feel any pressure to
match Labour’s spending plans nor to ‘share the proceeds of growth’,
the urgent questions we now face are whether we are to match government
on massive, costly infrastructure projects – or better still to make
the political weather perhaps by promoting a fiscal stimulus by means
of a targeted tax cut to the less well off which will readily be
recycled into consumer consumption.
In truth there remains an eerie sense of calm in the ‘real’ economy.
But not for much longer. For now the tumultuous collapse of the finance
sector appears to many an isolated incident which has now been
contained. Whilst the newspapers might be littered with credit crunch
tales – falling house prices, squeezed company profits – I just do not
believe that this crisis has really bitten the public yet, as
demonstrated by the crush of shoppers at London’s new super shopping
mall, Westfield, last weekend.
More worryingly this is coupled with a notion that however bad things
get financially for the individual, the state will move to soften the
blow, a perception that the government’s intervention to protect
depositors in Northern Rock, Icesave and others has only served to
increase. Labour is returning to its comfort zone with an economic
narrative of interference in the name of protecting the public through
continued high spending. We saw the Prime Minister developing this idea
last week in the House of Commons as he sought to exploit the outcome
of the US election as evidence of an international mandate for big
government. If there is a lesson to be learned from Barack Obama’s
success this should not be it.
For sure the world has changed but that is no reason for Conservatives
to be bystanders – we must not be mesmerised by the tumultuous events
into lacking the confidence to present a distinctive pathway forward.
The era of cheap and easy money is now behind us yet too much
government borrowing is targeted at short-term consumption rather than
building for a better future. This was the case before the credit
crisis and remains the case now. An increase in state intervention may
soften the financial blow in the immediate term, but the looming level
of interest payments alone on rising debt risks the lowering of living
standards for decades to come.
It will soon dawn on younger voters that the unspoken message of the
political class to anyone under thirty is that their generation will
need to not only fund the cost of pensions for those who are older, but
they will have to significantly lower their own financial expectations
when the time comes for them to retire. The availability of cheap goods
– clothes, technology, alcohol – has created a false sense of material
wealth in the young. Unfortunately the longer term prospect of being
able to pay off student debt, enjoy a standard of living as good as
their parents, live on a decent pension for a retirement likely to last
decades and expect a generous range of state benefits that those
currently in retirement take for granted looks less rosy.
Any failure by government rapidly to grasp this nettle risks serious
social unrest in the decades ahead. Our society will otherwise be
economically divided as never before between old and young; those
working in the comparatively secure and well-pensioned public sector
and those in private wealth creation; those with globally transferable
opportunities and others in an increasing tail of low-skilled, chaotic
Conservatives need to connect these realities and provide a convincing
financial and moral narrative as to the importance of balancing the
collective books. Outside of wartime it is almost unique for any
generation to conclude (as is the case today) that its children and
grandchildren will most likely be worse off than it has been. Unless
radical action is taken to halt and reverse these unsustainable levels
of public sector borrowing and to re-educate people as to the economic
realities of maintaining a cradle-to-grave welfare state, that will be
the sorry fate to befall the future generations of Britons.
At the next election we can offer the electorate change and a
distinctive agenda which shows we are ahead of the game. If the best of
times are to lie ahead the Conservatives must make the case for a
smaller, more efficient State and understand there is an untapped
appetite amongst our fellow Britons for discipline and prudence. We
should relish the real opportunity that comes with giving the
bewildered general public a convincing narrative for the future based
upon our enduring principles.