It won’t be for a while yet, but the UK seems headed for another financial crisis. And this time, the government won’t be able to blame the banks. The blame will lie squarely on our own determination to vote ourselves generous healthcare, welfare and pension benefits in the hope that our children will calmly pick up the bill.
This giant welfare-state Ponzi scheme is bound to collapse sometime – though you can be pretty sure that the politicians running it won’t end up in the slammer alongside Bernie Madoff. An ageing population means that all those benefits we vote ourselves today will be simply unaffordable tomorrow. You believe the national debt will top out at 100 percent of GDP? Add in these hidden commitments, and you discover the debt is already many times that.
In the Adam Smith Institute report, On Borrowed Time, the award-winning analyst Miles Saltiel pins numbers on the depth of this black hole – a black hole that gets deeper as our population ages. He figures that if the current government’s belt-tightening continues to 2015, and then all the ‘proceeds of growth’ go to fund higher public spending – which isn’t unusual – UK plc goes bust in 2019.
If the post-2015 ‘proceeds of growth’ are split 50:50 between spending increases and debt reduction – a ratio which would be remarkably restrained of governments, given past experience – we hit the sand in 2031.
The good news is that if we hold public spending constant and all the ‘proceeds of growth’ are devoted to paying off our enormous debt, then we can actually pay off the national debt, though it will take 31 years to do it.
As for the likelihood of this third scenario: well, in the words of Robert LeRoy Ripley, you can believe it or not. But if we aren’t radical, we’re stuffed. For example, the state is a hopeless insurer, and should get out of the business. Privatize all those state hospitals, hand us the £236bn in proceeds, and let us buy our own health insurance, says Saltiel. Then cut tax and regulation on voluntary groups and let them provide any incapacity and income support that we can’t provide for ourselves.
While we’re at it, let’s make politicians fess up to the real future costs of the glittering perks they promise us – and bring in limits so they can’t promise us the world today and send the bill to our children.
Eamonn Butler is Director of the Adam Smith Institute and author of The Rotten State of Britain (Gibson Square).Tags: Adam Smith Institute, Debt, Debt crisis, Health, National insurance, Pensions, Public service reform, Spending cuts, UK politics, Welfare