The UK will reduce its national debt this year – and still we have talk of austerity

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I am not often inclined to agree with Chris Giles at the FT: poor old Chris has his head in the sand of dogma far too often to usually make much sense but a couple of quotes from his offering this morning are worth noting (as long as you ignore the packaging they come in). The first is this:

The message from the British government’s independent economic forecaster [The Office for Budget Responsibility] will be that Brexit will hit the nation where it hurts most: its wallet.

And the second is:

This is a time for evaluation and explanation of the public finances rather than rigid rules.

Since the second quote is always true this has a stopped clock telling the time correctly twice a day quality about it, but that is not to undermine its truth.

But in that case let's start with the glaringly obvious. This is that the UK is forecast to borrow £55 billion this year:


I think it will turn out to be more, but let's stick with the official estimate.

Then let's note that the Bank of England is forecast to do £60 billion of QE using government debt this year.

And then let's recognise that as the government's own accounts show, QE cancels government debt. This is hardly surprising: if the government owns the Bank of England which owns the government's debt then the government owns its own debt and you can't owe yourself money. It's as simple as that: Emperor's new clothes stuff, to be honest.

So this has three consequences.

The first is that the national debt is not £1.6 trillion as people keep saying: it's £400 billion or so less than that. And I think that to lie about the size of the government debt is really quite serious.

Second, it means that if things go to plan the size of the UK national debt will fall this year. I admit that will only be by about £5 billion but it is a fall: in net terms debt it being repaid, albeit by QE.

And third this means that the official view of the public finances is just wrong: if a deficit is a measure in the change in net government debt from one year end to the next it is possible that the government will run a surplus this year.

And it will do that without creating enough inflation to meet its targets.

But despite it we are apparently dedicated to austerity when that is the last thing we need. Wallets do not need to be hit, in other words.

So I agree with Chris Giles: we do need some evaluation and explanation of the public finances. We could start by explaining what the real national debt is. And what the real deficit is. And we could continue by explaining that we don't need austerity as a result. In fact, we could do with a dose of extra spending. That would be a proper evaluation.

But I can't see Chris Giles and the establishment saying it. Why? Because they want to impose the misery of austerity on people.

Nor can I see Labour saying it. And that one is a lot harder to explain.