nef (the new economics foundation)

“Britain is broke – we can’t afford to invest”

Ellie Mae O’Hagan, The GuardianHoward Reed, Landman Economics

nef (the new economics foundation)

The myth

“Britain has maxed out its credit card. The level of debt is too high, and the cost of servicing that debt risks bankrupting the UK. We’re in real danger of heading the same way as Greece.”

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In the wild

“We want to offer people a choice between… a Labour Government that has bankrupted Britain again, and a Conservative Government that will build confidence in Britain's future.”

– George Osborne, January 2009

“The British Government has run out of money.”– George Osborne, February 2012

“The more government borrows . . . the less confidence there is... and when confidence in our economy is hit, we run the risk of higher interest rates.”

– David Cameron, June 2010

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The reality

• By historical or international standards, the national debt is not high

• The cost of servicing Britain’s debt is lower than at any point from 1945 – 2000

• Britain is not Greece – we have our own central bank

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In reality:By historical or international standards, the national debt is not high

nef (the new economics foundation)

In reality:By historical or international standards, the national debt is not high

Source: http://falseeconomy.org.uk/cure/how-big-is-the-problem

nef (the new economics foundation)

In reality:The cost of servicing Britain’s debt is lower than at any point from 1945 - 2000

nef (the new economics foundation)

In reality:The cost of servicing Britain’s debt is lower than at any point from 1945 - 2000

nef (the new economics foundation)

The reality: Britain is not Greece – we have our own central bank

nef (the new economics foundation)

What about the ratings agencies?

Do we need to worry about a UK downgrade?

NO•US downgrade in 2011 made no difference to borrowing costs•Same true for UK in 2013

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It’s precisely the right time for the UK government to borrow to invest

“Here are just some ways borrowing more money can mean borrowing less:•You are unemployed. You have great ability, but few qualifications. You take out a career development loan to pay for post-secondary education. You get a well-paid job as a result.•You are unemployed. You have ample qualifications, but no smart clothes. Before the first of a string of job interviews, you borrow enough to buy a suit, ensuring that you win gainful employment and don't have to borrow money to eat.•You live in a 1950s prefab. With no real protection against the elements, an uncomfortable proportion of your monthly income goes on heating. You borrow money to pay for insulation, your expenditures drop, and you use the extra to pay off credit-card bills.•Annual income six pounds; annual expenditure six pounds sixpence. Result: misery. You borrow some money to put solar panels on the south-facing roof of you Guernsey house, reducing your spending on electricity. Annual income six pounds; annual expenditure five pounds, nineteen shillings and sixpence. Result: happiness.”

From Alex Hern’s New Statesman blog: ‘Snappy comebacks to stupid questions: the eternal undeath of the credit-card analogy’

nef (the new economics foundation)

In summary

“Britain, then, is not “broke”. The national debt is not high by historical or international standards, the cost of servicing the debt remains manageable, and Britain retains the flexibility of having its own central bank. As for Britain not being able to afford to invest, the truth is the exact opposite: with the cost of borrowing at historic lows, Britain cannot afford not to invest.”