A British Housewife’s view of the UK economy:

Treasury forecasts that in five years the UK Government will owe £1,400,000,000,000. No, I didn’t lean on the ‘0’ key. It really is that big. Let’s take the very most optimistic view possible:

1. suppose this is true and it is not higher (bank bale-outs, PFIs, decommissioning power stations, civil servant pensions and so forth blithely ignored for the moment because Labour have made this ‘off balance sheet’ to hide it);
2. suppose this is only serviced at a rate of 3% and that it will not cost more (for example, because interest rates rise, because investors will not buy gilts, or because the pound drops further against other currencies and gold);
3. suppose that other Government income does not drop (because the economy shrinks, because people and companies pay less tax if they are bankrupt or unemployed);
4. suppose that other expenses do not go up (unemployment benefit; more bale-outs; rising pay demanded by the 40% of the workforce in the public sector);

and suppose these things even though they are probably not true at all.

Even with this rosy view, the cost of servicing that debt will be, at a modest 3%, some £42,000,000,000 a year. Again, I do not lean on the ‘0’ key.

This means that towards the end of the next Parliament, the cost of paying for all the debt will amount to about the same as the total corporation tax income the treasury takes in a year at today’s rates.

Just paying interest Government’s term will cost the entire contribution of British business to the pubic purse . Or look at it this way, interest payments will take funds which amount to more than the Government spends a year on public order (police, law courts, prisons, etc): that is just to pay the interest, not to pay back what it borrowed.

What is the alternative view? Maybe the public debt could be £1,840,000,000,000 (including the off balance sheet items ignored in the Treasury forecasts). Maybe my assumptions are a tad too optimistic. If interest rates on gilts then go up to a fairly unremarkable 6%, that would be a debt interest cost of £110 billion a year – about the current cost of the National Health Service.

What happens then, as the Government runs out of money?

It still wants to pay for the NHS, pensions, the Army, Police, welfare, rubbish collection, equality, redistribution of wealth, pocket money for low income teenagers (I kid you not), schools, universities, nauseating public art, the climate nonsense and so forth. Government spends about half our output and employs nearly half of us at the moment. It spends about £43 million a day on the European Union. Well at some point, say it can’t actually pay because of the debt interest it needs to pay.

You may say it will have to raise taxes, sell gilts (borrow even more), sell gold, or just print more money.

Raising taxes will come. but will simply strangle the last bit of life out of what is left of the productive part of our economy, or push wealth and investors abroad. I would also be amazed if the UK can carry on issuing gilts. Who will buy them? A broke UK is hardly the best investment and the credit rating is already being questioned. And if gilts are sold, we may have to pay punitive rates. Gordon Brown already sold all the gold, by the way, when the price was low. What is left? The Government will have to print money. However, this can only make matters worse. The money supply will go up and therefore prices will rise with interest rates (probably just as oil prices go up further). The worth of pensions, savings and property will be cruelly devalued by this dilution in the value of the pound. There will be public sector anger, unemployment, rising prices and real poverty.

(By the way for all of you who say the CPI and RPI measures of inflation are low, please just remember that food inflation as calculated in the Daily Telegraph, is consistently between 9 and 14%. The indices are low in energy and mortgage payments because oil prices went down and because of the low interest rate. These can always go up again.)

Can Government cut spending? Just just to pay for interest and not really touch capital obligations, we shall have to ditch the equivalent of the NHS. The main political parties have done their typical thing: Conservatives have been vague and Labour has been misleading. Conservatives have said they will cut some spending but will not cut the NHS or Third World Aid. Labour is committed to spending more in real terms but won’t say if that includes interest and unemployment benefit so this means in reality spending less too, but not admitting it (in the usual Labour way).

The only answer is of course to make the productive part of the economy work again. We must reduce the cost and size of the public sector and ditch the EU. We must somehow allow businesses to create wealth, make a profit, employ people and thereby help them pay their mortgages. Even if we do this, it is going to be tough and public policy makers simply are not facing up to it. Both main parties have obviously never kept to a household budget.

Mrs M A Westrop, UK Housewife: economists please comment.