YOU can see why British politicians are so fixated with the danger of debt. The country lived in a sort of unspoken la-la land of excessive borrowings in the primrose path that culminated in the 2008 financial crisis. The then-Labour government, the banks and the man in the street were all culpable,
We all know where it ended up: the Prime Minister and his Chancellor, who had a deeply unnerving dress rehearsal with the run on Northern Rock a year earlier, scared that at least one of our major banks, Royal Bank of Scotland, was within hours of not having enough money for the automated teller machines to work. Cue: call in the taxman with a publicly funded lifeline.
And when the Tories took power in 2010 there was the infamous note left for his incoming successor by the Labour Treasury minister of the time, Liam Byrne: “I’m afraid there is no money.”
We have had five years of austerity, first a Tory-led car with Lib Dem stabilisers, now a purely Conservative vehicle, and we still have years to go to balance the public books again.
In that context, it is not difficult to see the government’s Animal Farm-like default position of “Four legs publicly solvent good; two legs mired in debt bad”.
But the contra argument aired last week by British Chambers of Commerce (BCC) director-general John Longworth, that the pendulum of conventional wisdom has swung too far towards the “demonisation of debt”, is interesting. It is also topical ahead of George Osborne’s Spending Review later this month.
The Chancellor is planning more reductions to public spending against a backdrop of £1.2 trillion of national debt. But Longworth, espousing a view that is also an article of faith of the private equity industry, maintains that there is “both good debt and bad debt”.
True. Businesses often use debt to run their balance sheets efficiently. It is not a given that borrowing is bad, particularly if it is to finance longer-term investment that will pay dividends farther down the line, and where the returns on the investment are greater than the cost of servicing the debt.
The BCC chief is concerned, in particular, that vital infrastructure projects are stalled because of the government’s inflexible determination to get debt down.
I sympathise with his argument that public spending on roads, rail, aviation, energy security and the internet should be excluded from the spending crackdown because it is a long-sighted investment that will yield many long-lasting benefits to the economy.
The government, constrained and hidebound by the financial shocks of recent history, has missed a trick in not using six years of low interest rates to borrow and raise its game on infrastructure generally, quite apart from grandiose but divisive one-off projects such as the HS2 railway.
Debt reduction is laudable, but never as a tunnel-visioned fetish. «