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17 December 2014

Debt and poverty: the tension facing the UK

Debt and poverty: the tension facing the UK

Most families strive to keep their household budgets in check. They aim to spend a portion of what they earn, put some aside for a rainy day, special occasions and retirement and pay down any debt they have rather than allowing it to spiral out of control. This is no easy task with the cost of living increasing more than many people's incomes and house prices soaring out of reach in many parts of the country.

The government budget should operate in much the same way. But it doesn't.

Borrowing is out of control. Way, way out of control. As of this year the government owes more than £1 trillion.

It's hard to comprehend a figure this massive. It can be easy to disconnect and not accept the seriousness of the situation.

But when it comes to government debt we often have a different view. Despite the potential ramifications we seem almost flippant about what is a very serious problem. A problem that impacts us whether we like it or not. Whether we understand it or not. Whether we accept it or not.

We see the debt figures on the news, hear analysis on the radio and read the dire predictions in the papers yet we continue to expect the government to operate as if this debt didn't exist. But debt is debt. Whether it's household debt or government debt it will eventually catch up with us and often with terrible consequences.

At a minimum, high levels of government debt means money must go towards paying the interest. As future interest expense rises, more and more of the tax revenue is needed to service the debt which means there is less money available for other priorities such as health, education and innovation-driving research.

There are many reasons why we may choose to disassociate ourselves. We can convince ourselves it's far away in Westminster, that it's someone else's problem. And in a sense that's true. In a representative democracy such as ours we vote for people to represent us in parliament and look after issues like this. Those politicians are tasked with working with the experts in government departments to responsible handle the budget.

Another reason may be our view of the role of government. Most of us believe the government has some role to play in our lives. We do our jobs, we pay our taxes, look after our families and in return the government provides a safety net in case we need it, a nest egg for retirement, infrastructure such as roads, schools, defence and healthcare.

The extent of state provision is where most lively debates occur be it in parliament, in the media, at the pub or over the dinner table.

This is not an ideological conversation that will be addressed here. That's a topic to grapple with another day. But generally there is consensus, with the exception of die-hard libertarians and anarchists that the government is there to provide some services.

Indeed, even though government is very much a biblical concept, it doesn't matter which side of the fence you sit on there is no arguing with the reality that right now the government is spending more than it is earning in taxes.

No matter what we think the government should or shouldn't provide it can't continue unchecked for the unforeseeable future. To ignore it is to leave a bigger problem to our children and grandchildren. That's not a legacy most of us would desire, and bridling future generations with our debt is certainly not God's will for the way we govern.

Just as you would in your own finances, spending needs to reduce and the debt needs to be paid down.

In the recent Autumn Statement we learnt just how serious the UK's debt problem is. Despite austerity measures public borrowing has increased this year compared with last year. This is because of a weaker tax revenue than expected. While the economy has created almost 800,000 new jobs in the past year many of them are in low-paid sectors. This means the tax received by government is smaller. Economists say we are undergoing a "jobs rich but tax poor" economic recovery.

So we are looking at massive cuts for the next few years. Cuts which will affect each of us. The recent Autumn Statement shows the UK is in for the most dramatic cuts in public spending for almost a century.Many government departments are looking at cuts of up to 40 per cent, some even higher. The independent Office for Budget Responsibility has said that the plans outlined by the Chancellor will see greater austerity measures in the next parliament than those laid out in 2010. In response the Telegraph predicts we're going to experience how much this country is prepared bear on austerity and deprivation.

This is a hard pill to swallow. Especially when we are faced with the harsh reality that many people in the UK are suffering the effects of poverty.

On the one hand we're not doing too badly. Internationally our pension scheme and health system are world class and despite some flaws we have a comprehensive welfare system. People in developing countries for example, can only begin to dream of such schemes.

On the other hand food banks are being used more than ever, children in care has reached record highs, homelessness is increasing and joblessness continues to be a problem.

Against the backdrop of our mountain of debt we can't ignore the effects of poverty many Brits are facing. In an ideal world we would turn to the government's ever replenishing money tree and get rid of poverty (and debt while we're at it). But the reality is far different. Just as households have finite resources so too does government. Just as we are to be responsible with our finances so too is government.

Since the recession we have seen a significant rise in churches and other non-profits stepping in to respond with practical support and resources. Churches are currently the biggest providers of food banks in the UK.

It's no bad thing to have churches and communities helping in this way. Until the last century welfare was provided almost entirely by churches. And they did a pretty good job. They provided housing, food and schooling for children who otherwise wouldn't receive an education.

Today governments increasingly recognise the valuable role modern day churches play. A recent investigation by Church Times shows the state is increasingly paying religious groups to deliver local welfare crisis services.

Their investigation found a fifth of English councils have given cash to faith-based charities to run food banks, healthcare and counselling.

This is not to say the solution is for the government to wash its hands of addressing poverty and leave it to the Church. But rather to suggest that a possible solution lies somewhere in between.

Issues of poverty and debt are not solely financial. It is far more complex and nuanced than that. As is usually the case.

On the back of the Autumn Statement our government has a mighty challenge on its hands. To get borrowing under control and start to reduce the debt while ensuring our most vulnerable don't suffer as a result. A society's true worth is reflected in the treatment of their most vulnerable. Let's hope the UK reflects something of value.

 DEBT

 DEFICIT

Debt refers to the amount of money owed by the government. This is the debt that has built up over many years by successive governments. The running total if you like.

The accepted and widely used figure for debt is the net debt of the UK. This is total debt minus the government's liquid assets.

The budget deficit (or surplus) is the difference between what the government spends and what it receives.

When in deficit the government is adding to total debt. When in surplus the government can chip away at the mountain.