A GIGANTIC RED HERRING
billion public borrowing requirement is not such a terrible thing
THE FINANCIAL markets will judge Kenneth Clarke's Budget next Thursday by what it does to something called the Public Sector Borrowing Requirement — a mys- terious beast, once thought to be hibernat- ing in the Treasury basement but now, we gather, surging uncontrollably through cor- ridors and lift shafts all over Whitehall.
Unlike, say, the death penalty, or the manager of the England football team (or, following the San Marino game, the possi- ble conjunction of the two), the PSBR does not usually provoke strong opinions amongst ordinary people. Most are not sure whether it is just a little bigger than expected or monstrously huge; whether it is a catastrophe or just one of those things.
But they are prepared to he frightened by it if enough Micawberish commentators sound the alarm. A deficit between income and expenditure of 'ought and six', the Dickensian pessimist advised David Cop- perfield, 'result misery.' In 1988-90, the British government actually achieved a surplus of income over expenditure. In 1990-91 it broke even. In the two complete fiscal years since then, deficits were recorded of £14 billion and £37 billion respectively. In the current year the Trea- sury's estimate of the potential misery is £50,100,000,000.
That is what economists call a big num- ber. If it had to be secured by a mortgage over physical assets, the land, buildings and equipment of Britain's entire agricul- tural sector (£54 billion according to the Ministry of Agriculture) might just suffice, but the whole of Wales down to the last burned-out holiday cottage (£40-odd bil- lion, according to estimates by The Specta- tor Intelligence Unit, envy of all its rivals for the elegant economy of its output) would not.
What else does £50 billion look like? More than two years' worth of world gold production, enough to build a 200-foot statue of Mrs Bottomley in the manner of Kim II-Sung; the Canary Wharf tower filled to the 14th floor with £1 coins; a Channel Tunnel which surfaces at Northampton; or a motorway from Dover to Hull entirely paved with £50 notes.
Less colourfully, £50 billion is almost as much as the total of all privatisation pro- ceeds received by the Conservative gov- ernment since 1979 (£53 billion) and roughly equal to the combined value in today's stockmarket of British Telecom, Gas, Steel, Airways and Aerospace. It is considerably more than the all-time total of direct government revenue from North Sea oil (£41 billion). Since those two items, privatisation and oil, are remem- bered as the two great bonuses, which helped to restore the foundations of our economy in the 1980s, this year's over- spend begins to look like profligacy on a stupendous scale.
Up to the end of October, Mr Lilley, Mrs Bottomley and the rest of the culprits had in fact overspent by 19p for every £1 received by Mr Clarke. The result for the year will be the equivalent of an unautho- rised overdraft of £900 on behalf of every man, woman and child in the country.
The latter figure in aggregate is not, by the way, the same as the National Debt, as some people seem to think. At the begin- ning of this year, the total of all outstand- ing government debt was about £3,600 per head — representing the net accumulation of financing for all the follies and necessi- ties, wars, motorways and election promis- es of the past several centuries. John Major — by, among other things, allowing welfare spending to increase by half since 1990 and to exceed even his own ministers' estimates for this year by £8 billion — will have increased the National Debt by a quarter in a single year.
But, we may well ask, coming at long last to the nub of the question, so what? Gov- ernment borrowing is a fact of life. All gov- ernments borrow, and the weight of past borrowings diminishes over time through the combined effects of economic growth and inflation. We need not worry about the burden on our grandchildren. 'We are always doing something for posterity,' Addison wrote in The Spectator in 1714, `but I would fain see posterity do some thing for us.' Nor, in the modern interna- tional capital market, do we need to worry about foreign holders of gilt-edged stock seizing our gold reserves or our virgin daughters.
Interest rates are modest, and the contin- uing low ebb of consumer spending means that there are savings out there to be mopped up by borrowing. If the Require- ment looks big in relation to the existing National Debt it is mainly because the National Debt, these days, is rather small. Compared to the total size of the economy, Britain has less debt than any other country in Europe except Luxembourg, and sub- stantially less than either the United States or Japan. In 1990, our ratio of debt to gross domestic product was at its lowest point for several decades; after this year's excesses, it will merely return to the level which pre- vailed throughout the late 1970s and most of the 80s, itself much lower than the levels of the preceding era.
In these circumstances a sudden rise in government borrowing, even a mind-bog- glingly big one, is not in itself a terrible thing. The problem is not where the money is coming from, but where it is being spent — whether it is a bold strategy to stimulate spending and focus investment in those areas of state-funded activity which will eventually contribute to future prosperity; or whether it is an uncontrolled binge on bureaucracy, waste, benefits fraud and over-lavish welfare too sensitive to be tack- led by a government frightened of its own shadow. Stunting the growth of the PSBR should not be seen as the central objective of the Budget, but an incidental side-effect of a belated attempt to make ministers control the way they spend.
These arguments may merely serve to confuse the man in the street, uncertain whether to be for or against the PSBR. As President Lyndon Johnson once remarked to J. K. Galbraith, Did y'ever think, Ken, that making a speech on ee-conomics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else.' This year's PSBR is a colossal number to conjure with. As an indicator of the present government's grip on its own affairs, it is deeply worrying. But as for its long-term effect on the national balance-sheet, it is a red herring.
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