Economic Exit Strategy

Right now, the Government is battling on two fronts, and neither has a visible exit strategy. One is Afghanistan, where the row over helicopters continues. The other isn’t a military campaign, but an economic one: the amount of Government debt, and how to tackle it.

Total Government debt by the end of last month had risen to almost 800 billion, or more than 56% of GDP, as the Beeb reported yesterday. But what do the numbers mean? Is that a good or bad sign? Well, it’s a lot higher in terms of GDP than the 30 to 40 per cent range of 1998 to 2007, but it’s estimated to go higher – into a range of 70 to 90 per cent, and it has to be pointed out that the UK would not be the only inhabitant of this area: France, Germany and the USA will be there too, with Japan away in the distance.

What do the experts think? One look at the Beeb analysis shows the mix of messages. On the one hand, the numbers are “dire”, but then they are “modestly better than expected”. At first glance, this seems daft, but both are true: the actual level of debt is bad, but the amount of new borrowing is less than had been expected – and that was also true for May. Overall, Alistair Darling’s borrowing forecast is holding up: that at least will calm the City. But, as the man said, there’s more.

The problem for whichever Government is in power from now into the so-called Medium Term (that’s well beyond the next General Election) is not just the debt level, but the all important exit strategy: how they will not only service the debt, but bring it back down, thus maintaining and reinforcing market confidence. But there is also the warning from the UK after 1979, and the USA in 1937, that of cutting spending so much that the economy is tipped back, or sent deeper, into recession.

And, unfortunately, the only alternative Chancellor of the Exchequer with the practical experience of real economics, World’s Most Agreeable Politician (tm) Vince Cable, is unlikely to be taking up residence in 11 Downing Street come next May.

But before getting downhearted, have a look at Steve Bell’s take yesterday.