It is a concern that only one in 10 members of the public understands that even though the government is reducing the deficit, the national debt is still increasing. That’s a scary figure
At the moment our government is outspending our income by over £100bn every year, and between 2010 and 2015 our debt will have risen by £600bn.
Our current total debt (public sector net debt) is £1,032.4bn (July 2012), that’s 65.7 per cent of GDP, which represents around £20,000 for every man, woman or child in the UK. If you include the financial sector bailouts you can double that figure. We’re not that far away from Portugal, Ireland, Greece and Spain.
And, according to the Financial Times’ Austerity Audit, over 60 per cent of austerity measures are still to come and will continue to roll out past the next election.
I think that shows that there is a fundamental gap between ‘what’s happening’ and ‘what people think is happening’. One that is, I think, very dangerous for our democracy.
If people don’t know the state things are in, how can they decide what to vote for?
And it’s the same for governments. If they don’t understand the state of the public finances, how can they make the right decisions?
ICAEW has been delighted to see this government produce the annual Whole of Government Accounts (WGA) and the Office for Budget Responsibility’s (OBR) Fiscal Sustainability Reports, which should help both the public and government understand our position. The OBR was set up as an independent body in the public interest, so that governments of all political colours cannot pull the wool over our eyes.
But we await with interest, and hope, to see whether citizens and governments start to use these reports wisely.
So what would a sustainable public finance settlement look like?
Well, we know from the latest Fiscal Sustainability Report that in the OBR’s view– due to a number of factors including an ageing population and income from North Sea oil declining – the books will not balance in the future unless we do some of the following:
- reduce spending
- increase taxes
- encourage more immigration to the UK
In our view, in the long term we must also:
- make sure that the right information gets to the right people in time to make informed financial decisions in the public interest, for example in the NHS where data can ensure we have a targeted approach to services and improve survival rates
- enhance the quality of financial reporting which helps the public sector work smarter and do more with less
- equip and support public sector workers with the skills to work with limited budgets
- make sure that best practice in that sector is recognised and copied. For example, we need to look at how other countries have succeeded. There are lessons from around the world in a journal we published early this year, for example from the IMF and Sweden – which is worth reading
The choices that governments will have over the coming years are around how to manage the pressures on our public finances and maintain our strong credit rating which provides businesses with the confidence to invest, while trying to encourage a return to economic growth, which would mean a higher tax take.
I believe we can balance the books and make our public finances more sustainable. The key question is how Britain, and successive governments, will go about it.
Michael Izza is a speaker at our ‘Next State: A sustainable public finance settlement‘ roundtable at Labour party conference.