There are two obvious consequences of a current account surplus in the public sector. The first is that the ‘rest’ of the economy – the private sector, in essence – has to run a corresponding deficit. Whether that’s a good thing or not is a matter of opinion, and depends on the economic circumstances at the time. But the fact of it is inescapable.
The second is that it means that government debts would be repaid. But what if those to whom the debt is owed don’t actually want to be repaid? The outcome of repaying debt might not be as positive overall as some seem to assume.
The UK is not in a position where it is scrabbling around at the end of every month to borrow more money to pay the month’s bills, although I suspect that is not far off the image which many have. On the contrary, people are queueing up to lend money to the government. One person’s debt is another person’s investment, and UK government ‘debt’ is seen as a very worthwhile investment by the lenders.
Much of the government’s debt is held by institutional investors, including the pension funds of those of us who’ve been contributing over the years. And pension funds like the safety and security of government debt, even if the rewards are low, because it enables them to commit with certainty to paying pensions. (And, as an aside, it also means that much of our pension funds are already being invested in public projects, just not as directly and obviously as some might like.)
But if the government insisted on redeeming its bonds and paying down its debts, then those institutions might find that they either have to invest more abroad, or else invest in riskier ways. That might not be the best outcome for the population as a whole, never mind current and future pensioners.
I accept, of course, that not everyone is in the same position (although recent changes to pension rules mean that an increasing proportion of us are going to be dependent at least in part on investments for our pensions rather than current tax revenue). And I’ll accept that some might see advantage in a trade-off which reduces government interest payments even if it leads to less secure pension arrangements. But my point is simply this: most of the UK’s public debt is actually owed to the citizens of the UK in one way or another, and most of those to whom the money is owed are not only not demanding repayment any time soon, they’re lining up to lend the government more.
Government budgets are not at all like household ones, and talking as though they are is less than helpful. Reducing debt isn’t always the right thing to do.