Comments on: Don’t Panic! The best solution to debt is growth, not cuts http://touchstoneblog.org.uk/2009/10/dont-panic-the-best-solution-to-debt-is-growth-not-cuts/ Policy news and comment from the Trades Union Congress (TUC) Thu, 24 May 2012 11:52:07 +0000 hourly 1 By: Alex http://touchstoneblog.org.uk/2009/10/dont-panic-the-best-solution-to-debt-is-growth-not-cuts/comment-page-1/#comment-3623 Alex Sat, 03 Oct 2009 00:27:16 +0000 http://www.touchstoneblog.org.uk/?p=3976#comment-3623 Sam Brittan's article is lazy journalism. The debt to GDP ratio was high in Macmillan's time in office because of the second world war. GDP was growing fast and debt was high because of government borrowing during the war, not because of high government spending. More importantly, the ratio of government spending to GDP was much lower, about 30% compared to 50% today. That meant that there was 70% of GDP available to be taxed to pay down borrowing if required, whereas today only 50% of GDP available to be taxed (35% is already taxed and 15% is borrowed). In earlier times according to Brittan the ration of debt to UK GDP was even higher, but this is misleading because UK government debt was used to finance the whole empire and was serviced out of taxation in the UK and overseas, whereas the GDP figure related to only the UK. Furthermore annual government spending was only 10% of GDP, giving the government more leeway to repay the debt from taxes. In addition, modern debt numbers do not take into account off balance sheet obligations like the PFI and National Rail, nor the contracted public sector pensions, which are substantially higher than 50 years ago as a proportion of GDP. Sam Brittan’s article is lazy journalism. The debt to GDP ratio was high in Macmillan’s time in office because of the second world war. GDP was growing fast and debt was high because of government borrowing during the war, not because of high government spending.

More importantly, the ratio of government spending to GDP was much lower, about 30% compared to 50% today. That meant that there was 70% of GDP available to be taxed to pay down borrowing if required, whereas today only 50% of GDP available to be taxed (35% is already taxed and 15% is borrowed).

In earlier times according to Brittan the ration of debt to UK GDP was even higher, but this is misleading because UK government debt was used to finance the whole empire and was serviced out of taxation in the UK and overseas, whereas the GDP figure related to only the UK. Furthermore annual government spending was only 10% of GDP, giving the government more leeway to repay the debt from taxes.

In addition, modern debt numbers do not take into account off balance sheet obligations like the PFI and National Rail, nor the contracted public sector pensions, which are substantially higher than 50 years ago as a proportion of GDP.

]]>