Are fiscal conservatives even certain of what they're arguing about?

One of the problems fiscal conservatives have is that most of them can't actually agree about what they are conservative about.

One of the problems fiscal conservatives have is that most of them can't actually agree about what they are conservative about. Debt? Deficit? Absolute, or relative? And how should we talk about the issue?

For instance, one would guess from their name that deficit hawks care about the deficit – that is, the amount that a country spends each year in excess of the amount of revenue it receives, officially called (in Britain, at least) public sector net borrowing (PSNB). Last year, PSNB stood at a shade over £120bn, and this year, it's forecast to be £91.9bn. That's the government's deficit reduction strategy at work, albeit at far slower work than we were promised in 2010.

But other fiscal conservatives go after debt (the official measure of which, Public Sector Net Debt, stands at £1.03trn). Fraser Nelson, for instance, condems the elision between the two in today's Telegraph:

Cameron faces the same problem. He says he is “dealing with the debt” when he is actually increasing the national debt by as much as Labour proposed: an almighty £600 billion. But he has not yet been rumbled. An unpublished YouGov poll by Policy Exchange, taken after last year’s Budget, found that just 14 per cent of voters realised the national debt is rising. Another poll, released this week, found that only 10 per cent see what’s going on. Now, just as under Labour, ministers play word games and talk about “cutting the deficit”, knowing that most voters will hear “cutting the debt”. Astonishingly, almost half of British voters think that debt is falling.

It's certainly the case that debt is rising, and will be rising for some time. And confusing debt and deficit – as, say, Nick Clegg does – is unacceptably economically illiterate. But it's unclear how, exactly, being a "debt hawk" would work.

It is emphatically not the case that Britain can begin reducing its debt any time soon. For all that Nelson attacks the government for increasing the national debt, to reduce it would entail turning a deficit into a surplus overnight. Just considering the pain involved in entering into a seven-year deficit reduction program, doing it any faster would be politically impossible.

And in fact, given the various multipliers in effect from government spending, it may be economically impossible as well. There is strong evidence to suggest that the mere fact of trying to cut the deficit too quickly led to the contraction we're now experiencing; and that contraction has reduced government revenue and increased mandatory spending to a degree that makes it difficult to do any deficit reduction at all.

Being a debt hawk would thus seem to necessarily imply being a deficit hawk, at least for the time being. When – if – the structural deficit is eliminated, then the two groups can argue over whether debt should start being reduced; but while there is a deficit, it's silly to pretend that national debt going up is somehow surprising, and unless you want to go full Paul Ryan, you aren't going to get rid of it in a year.

All of this confusion is compounded by the fact that if it's unclear what we ought to be trying to reduce, it's doubly unclear how we ought to go about measuring it. Debt hawks favour quoting absolute figures, like those I've used at the top of the post, because frankly one trillion pounds sounds a lot more than "65.7 per cent of GDP". Yet the latter is probably a more accurate representation of where we are; for one thing, it allows us to accurately compare the economic situation with similar ones from history, as this chart (from Wikimedia Commons) does:

And for another, it conveys an important truth about the debt, which is that we can shrink it in two ways: either by paying it off, or by growing our economy big enough that what's remaining doesn't matter. This is the truth behind arguments over "deficit reduction versus growth".

But there is an even better way to discuss the national debt that in terms of a ratio to GDP, and that is in terms of it's cost.

The only downside to having debt is that you have to pay interest on it. But more debt doesn't necessarily mean higher interest payments – in fact, it's the exact opposite. Joe Weisenthal explains:

Using data from Bloomberg, we looked at basically all of the big emerging and developed markets* with a big bond market, and good data on debt to GDP and decided to check to see if there was any connection at all between debt to GDP and the yield on their 10-year bonds.

The answer, quite clearly, is no.

In fact, using an exponential regression, we detect a slight shift down and to the right, meaning that the more debt a country has relative to its GDP, the cheaper it is to borrow.

As debt goes up, interest rates go down. So doubling debt doesn't double interest payments, and halving debt doesn't mean you pay half as much servicing it. In chart form, that claim looks like this:


Our interest rates are so ridiculously depressed at the moment that even though we've almost doubled our national debt to GDP ratio, the amount we pay to service our debt has barely gone up by half.

This is what the debt hawks should be looking at. Not debt to GDP, and certainly not absolute debt; nothing matters to debt except the cost of holding it. And that cost doesn't present a particularly compelling reason for cutting it.

Gold, as a common and universally accepted store of value, is particularly useful to illustrate stories about abstract economic concepts like debt. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Industrial Strategy: Ensuring digital skills are included

The opportunities for efficiency, adaptability and growth offered by digital skills have never been so important to British businesses. The New Statesman asked a panel of experts, including Digital Minister Matt Hancock, Tinder Foundation CEO Helen Milner, Tech City CEO Gerard Grech and Google Policy Manager Katie O’Donovan, to pinpoint the weak spots and the opportunities for a smarter digital skills strategy.

British people spend more per capita online than any other country in the developed world. With 82 per cent of adults using the internet on a daily basis and more than 20 per cent of retail sales taking place online, it would appear that most British businesses are digitally capable. A closer look, however, reveals a significant digital skills gap between larger companies and the small businesses that make up 60 per cent of the private sector – comprising a workforce of over 15 million people, with a turnover in excess of £1.6trillion. Of these small enterprises, a third don’t have a website and more than half are unable to sell goods online. So, are digital skills taking priority in the government’s industrial strategy?

Matt Hancock, Minister of State for Digital and Culture, said digital education from an early age will be a cross-party objective for years to come: “We’re making some progress on this, and one of the most exciting things we did in the last parliament was to put coding into the curriculum from age eight. We’ve recognised that there are down-the-track requirements for digital skills, as much as with English and Maths, and we’ve got a huge array of initiatives to corral the enthusiasm for digital and make sure that it is best used.”

Hancock added that participation in the digital economy is important at every level of business and society: “I can group the facts and figures; 23 per cent of people currently lack basic digital skills, and about 90 per cent of new jobs now need some form of them. I think that what we’ve learnt following the Brexit vote is that the need to engage everybody is more demonstrable than ever before. This is a very important part of the Prime Minister’s agenda, and wider digital engagement is a key part of the broader issue to make an economy that works for everyone.” 

It is this wider opportunity to access and education that forms the bedrock of a new partnership between Google and the Tinder Foundation, aiming to deliver digital skills training to those in society who are most in need. Cue the Digital Garage. The project sees community organisations across the country provide skills support to small businesses, sole traders and indviduals, helping them to make the most of their resources.

Katie O’Donovan, Policy Manager at Google, explained: “Google has a longstanding commitment to train 250,000 people across the UK in digital skills. Since launching the Digital Garage in 2015 we’ve provided mentoring and digital skills training in Leeds, Manchester, Birmingham, Newcastle and Glasgow.  But as the UK faces a new chapter we want to ensure, whether you’re a student looking for your first job, a small business looking to attract new customers or a musician looking to promote your music, the right digital skills are freely available in your local community.

Tinder Foundation CEO Helen Milner recognised that a wider proliferation of digital skills would release a surprising amount of value into the economy. “Some of our research showed that every £1 invested in growing people’s basic digital skills put £10 back into the economy. But it’s not enough to save money - you’ve got to show how you can make money out of it as well.”    

The Labour MP for Aberavon, Stephen Kinnock, has seen at first hand the benefits of support for digital skills, and welcomes opportunities for partnership in his constituency. The shift from manufacturing, he accepts, needs direction and following the depletion of his local steel works he views digitisation as “the only way forward.” Kinnock added that exciting projects such as the Swansea bay region or ‘internet coast’ becoming a testbed for 5G could serve to re-energise communities which are in many ways in a state of decline. Kinnock said: “I’m absolutely delighted that we’re going to have pop-up versions of the Digital Garage in Port Talbot.”

CEO for TeenTech Maggie Philbin, meanwhile, stressed that digital education at school level must be taught through the lens of practical application. She warned: “Many young people aren’t greeted by any coherent messaging in school, so they don’t see why they’d need digital skills in the workplace. We’ve got to start getting a better message across and improve the opportunities for actual work experience that harnesses these skills.”

Karen Price, CEO at The Tech Partnership shares this view. For Price, adapting apprenticeships to incorporate digital skills will help to inspire a culture of innovation. She suggested that “if that's part of an apprenticeship that could be polished to use in a business environment, you'd have a digitally capable young person who could probably move that business on in a different way.”

Nick Williams, Consumer Digital Director for Lloyds Banking Group, views improving people’s digital skills as a matter of urgency and brought up research conducted by the company’s new Business Digital Index for 2016 which found that 38 per cent of small businesses and 49 per cent of charities are currently lacking digital maturity. “It’s no longer a matter of choice,” Williams said, “for organisations to survive, we must focus on a digital message.  Technology’s moved on and people just haven’t kept up. We have to show how these new skills can translate to greater productivity. Ability and access are the two variables to address. We are on the brink of going down the route of a digital divide – those who are capable and those who aren’t – and we’ve got to stop that.”

Rachel Neaman, Director of Skills and Partnerships at Doteveryone, was quick to pick up on this point. She warned that any digital training must not simply be for future generations’ benefit, but also be afforded to those already in work. “What are we doing for the people who currently lack these skills? How do we stop people from being left behind?” Neaman called for an “equal emphasis” on updating and upgrading the existing workforce. Julian David, the CEO at Tech UK, was also keen to highlight that digitisation is “an ongoing process” and therefore “retraining” at regular intervals is needed to cope with a continually evolving demand.

While Hancock spoke of a “unit-based standard learning system”, similar to that used in American schools, to help apply digital skills training where it is most appropriate, IPPR North researcher Jack Hunter said there were real opportunities to be grasped in the coming devolution agenda: “The new mayors that are coming in next year to drive the agenda and economic growth are going to be getting a lot more funding around a variety of different skills streams that feed directly into the digital programme.”

The panel agreed that the digital divide will only grow wider if action is not taken. Director of the Action and Research Centre at the RSA Anthony Painter said that society is being split into two camps: “the confident and creative, and those who feel held back.” Painter recommended that the latter group are given a fresh chance at being empowered digitally. He said: “They don’t tend to use the internet for professional development, whereas the others do. We’ve been having a look at this locally by creating a ‘City of Learning’ which combines a digital platform built around open badges which have micro-accreditations for learning; things that if you get someone’s passionate interest and then start feeding into more formal learning opportunities then you wrap around that a sort of city-led campaign which lets them identify with a common cause – we’re a learning city.”

Tech City UK CEO Gerard Grech concurred and went to explore the link between a strong web presence and business expansion or improvement. The problem identified is that many businesses may not realise the extent of their digital capabilities and thus run the risk of missing out. Grech said: “If you ask a window cleaner if they are a digital business, they might say no, but if you ask how they might go about quoting someone, they could find the address on Google Maps or get the Street View. That’s the idea, to show how digital can be used for them.”

Ultimately, the panel concluded, that the enthusiasm to add a digital depth to Britain’s talent pool was validated by its potential advantages. “A lot of the major challenges facing the economy,” Painter summed up, “are actually rooted in skills. Whether it’s the challenges of Brexit or the challenges of broadband, I think if you fix the skills, everything else falls into place.” The panel agreed that any government has a responsibility to champion digital strategy throughout society, regardless of location or economic standing, and equip businesses with the digital skills required to perform at their best.  

The round-table discussion was chaired by Kirsty Styles.

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