The UK has a problem. As Iain Martin points out in The Daily Telegraph, we are deeply in debt (£1.8trn worth) and still getting in deeper. This is no time for “spending laxity”. Yet that is exactly what we are going to get. There is no group in the UK prepared to pay any more tax and no group prepared to give up any of their state-financed perks.
Pensioners, the obvious example here, have no intention of supporting anyone who might mess with the pensions triple lock or ask them to pay much towards their own social care from their huge reserves of housing wealth. The rest of the nation won’t hear a word about rationing the NHS; charging for GPs appointments; or making any more than token efforts to rein in Gordon Brown’s out-of-control tax-credit system.
An imaginative government with a proper majority could have done something about some of these things. But as was very clear from this week’s Queen’s Speech, we don’t have one of those governments: almost everything remotely controversial from May’s manifesto (Brexit aside!) was dropped from the government’s two-year plan. So the social-care provisions become a consultation; there is no mention of taxes at all; the conversation on corporate governance disappears and there is no mention of pension policy at all (be it on the triple lock or tax-relief reform).
Ask anyone what they think is going on in UK politics at the moment and they will tell you it is riven with chaos caused by a demand for huge change. Maybe it is. Maybe it isn’t. But the result of today’s situation is less chaos than same old, same old: we are going to keep taxing (inefficiently) and spending (rather too much) until we topple under our debts.
Think that isn’t possible? Read John Dizard in this week’s issue on the subject of Illinois – a US state so close to financial collapse that its debt is soon to be rated as junk. Worse, from the point of view of those holding the debt, the judge looking at the matter has made one thing very clear: the state is obliged to make good its welfare obligations before it pays the interest on its debt.
Unsustainable debt is always defaulted on, one way or another. Interest isn’t paid, citizens don’t get what they were promised or inflation erodes the real value of the debt. The UK tends to go for the last of these options, something that means you will want to be very careful before you dismiss last week’s inflation numbers as a one-off. Investing in times such as these is tricky. We always tell you to diversify and we stick by that advice. But this week we have Jonathan Compton writing about Turkey. His advice? If you were planning to diversify into Turkey, just don’t. Here we default on our debt gently (with inflation). He expects Turkey to just default. That’s much worse.