Avoiding the question

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As part of his attempt to win over the Tory members to his side, Rishi Sunak this week wheeled out the old chestnut about passing on government debt to our children and grandchildren unless the UK restores a balance between government income and expenditure. It’s one of those things which is obviously ‘true’; if a government borrows in the short term and takes generations to repay, then the responsibility for servicing and repaying that debt passes on, inevitably, from one generation to another. It’s not the whole truth, though. Whether from ignorance or a wilful attempt to mislead (I opt for the latter), it ignores the wonderful process called double-entry book-keeping. It was invented in 1494, which probably makes it a bit too modern for the Tories, but for the rest of us, it means we need to look at the other side of the accounts, not just at the debt.

All debt has to be balanced by an asset somewhere, and in this case, what looks like a debt to the government looks like an asset to all of those who have loaned it money. And that, whether directly through NS&I products or collectively though pension and insurance funds, includes most of us. It’s true that we pay interest on the debt as part of our taxes, but it’s also true that we receive that interest back in our pensions and from some of our savings. And although it’s true that unredeemed government debt effectively passes down the generations, the same is equally true of the assets represented by that debt. It has to be, otherwise the sums don’t add up. At a population level, the problem is not that one generation is repaying the debt of its predecessors, because that new generation has also inherited the savings; it’s not an intergenerational problem at all. The real issue is at an individual level, not at a population level: because of an insufficiently progressive taxation regime, the individuals paying interest on the debt through taxes are not always the same people as are receiving the interest on the money loaned to the government. In short, the process serves to transfer wealth from the comparatively poorer to the comparatively richer.

The political question here is why, given that it’s their own supporters who disproportionately benefit from such a wealth transfer, the Tories are so keen on reducing debt in the first place. It’s hardly as if those lending the government money are keen to be repaid (they are not; it’s a safe repository for surplus money). But the Tories are not really against it at all; it has far more to do with advancing an ideological position about reducing the amount of government expenditure (and therefore taxes – and guess who benefits most from tax cuts?), whilst finding a supporting argument which those who have most to lose from smaller government expenditure can relate to and support. In truth (as Richard Murphy pointed out yesterday) the Tories are not and never have been the party of low government debt; quite the reverse. What they’re against is the redistribution implicit in a large state working for the benefit of all its citizens rather than just the richest, and nonsense about the national credit card is just a convenient form of argument. And whatever they may say, they really don’t care about reducing debt at all – in arguing for tax cuts whilst increasing debt, Truss is being far more honestly Conservative than Sunak (allowing rich people to pay less tax leaving them more money to ‘invest’ by lending it to the government in exchange for regular interest payments is classic Conservatism), even if she sees it as simply a transactional position to win the votes of the Tory membership.

An internal Tory debate about the size of the national debt is a convenient distraction, but ultimately it’s a Big-Endian debate. The real question should be about what we want the state to do and how. It’s easy to see why the Tories would prefer to avoid that question.