Constraining our debt is not about left-wing or right-wing politics

We must avoid the potential devastation of compound interest.

The Roman Emperor Caligula knew about keeping people on his side – he would literally shower them with money, spraying specially minted coins from the first floor of the Forum onto an adoring crowd. But Caligula also knew that you shouldn’t do too much of it. It’s a lesson that Shadow Chancellor Ed Balls would do well to listen to.

Balls is arguably one of the most controversial politicians at work today. Every part of his sensibilities appears to lie with increasing government expenditure, which translates into higher and higher government borrowing. The unholy truce he has negotiated with Labour party leader Ed Miliband to stick to the coalition’s post-2015 spending plan is nothing more than a tissue-thin tactic to get the pair, and the Labour Party, past the finishing line of the next General Election without spooking the markets.

Balls’ approach to spending was forged in the heat of the administration of Gordon Brown, himself no stranger to the idea that the public purse could be extended infinitely as long as the tax take was coming in – even if it was from the City of London. But when the spring tide of money went out in 2008, the abandoned shopping carts and tangled web of detritus that is our public finances were obvious for all to see, and with it the budget deficit ballooned. The total size of our national stock of debt has been trundling steadily upwards ever since and in the next couple of years its value will hit £2trn. That’s about 120 per cent of our annual national income.

But this doesn’t satisfy the shadow chancellor. Even when George Osborne announces that the deficit has not reduced as expected, Balls performs that most elegant of political pirouettes that sees him telling us that our borrowing is both shockingly large and, simultaneously, not enough. In the City the collective slapping of foreheads is audible – political rhetoric and word play doesn’t really have a place for those trying to work their way through delicately balanced financial markets that are – simultaneously – incredulous and credulous that we are where we are or that our current borrowing can be sustained.

Advocating government spending control is more than usually associated with "being right wing". But "the right wing" have lots to gain from increased government debt; company profits rise and with it the value of shares. City traders could "short" our currency and bond markets in order to make a profit as they fall.

So it’s frustrating that the debate over government spending is lazily classified as a "right versus left" clash.  In fact the main goal of the Deficit Constrainers is to stop the God of Compound Interest from taking over our public finances; when you have to start borrowing to pay your interest bill you don’t have to be a customer of Wonga.com to understand you are in trouble.

And that is where the UK is. Deficit Constrainers, by and large, want a situation that is out of control brought under control, because in their view the ultimate cost to society of an ever-increasing interest bill is greater than standing back and wilfully ignoring that it is happening. For a graphic illustration of  where this ends take a look at the images of Greece and Argentina that have flitted across our screens in recent years – societies devastated by the effects of a national debt out of control when compounding took over.

You think it can’t happen here? Think again – because it isn’t political, it’s mathematics. And this is why Ed Balls is so dangerous – he appears to treat our national finances and the debate around them as a vehicle for political power rather than the national good. From the apparent policy tensions and by Balls’ own recent Commons performances it is conceivable that he could split from the Labour Party and join a new left-leaning organization whose main agenda is expanding public expenditure leaving behind a party struggling to differentiate itself from the others. Alternatively, he could stay in the Labour Party, who are then elected in 2015 on the basis of who they aren’t, and begin a Caligulaean campaign to increase expenditure from within government. Either way, after the silly season and the post-Carney carnival has moved on and we are faced once more with our realities, the attitude of Ed Balls towards government expenditure will have much more significance for how the markets view us than we are currently allowing for.

It’s frustrating that the debate over government spending is lazily classified as a "right versus left" clash. Photograph: Getty Images

Head of Fixed Income and Macro, Old Mutual Global Investors

Getty
Show Hide image

The Brexit ministers who just realised reducing immigration is a problem for them

Turns out there's a teeny tiny hiccup with reducing immigration...

On 27 December 2015, the then-backbencher MP David Davis declared he was "voting out" in the forthcoming EU referendum. Among his reasons was the "disastrous migration crisis". 

Fast forward 14 months. Now the minister responsible for Brexit, Davis has been spotted in the Latvian capital of Riga, with a slightly different message

He admitted it was not plausible that Brits would immediately take jobs in the kind of low-paid sectors like agriculture and social care currently staffed by migrant workers. 

Immigration restrictions "will take years" to be phased in, he added. 

Davis is only the latest minister in the Brexit government to realise that immigration might be down to more than some pesky EU bureaucrats. Here's when the penny dropped for the others: 

Andrea "Seasonal Labour"  Leadsom

During the EU referendum campaign, Brexit charmer-in-chief Andrea Leadsom told The Guardian that immigration from EU countries could “overwhelm” Britain, and that her constituents complained about not hearing English spoken on the street. 

But speaking to farmers in 2017 as Environment secretary, Leadsom said she knew “how important seasonal labour from the EU is, to the everyday running of your businesses”. She said she was committed to making sure farmers “have the right people with the right skills”. 

Sajid “Bob the Builder” Javid 

The Communities secretary Sajid Javid backed the Remain campaign like his mentor George Osborne, but when he was offered a job in the Brexit government, he took it.

Javid has criticised immigrants who don’t integrate, but it seems there is one group he doesn’t have any qualms about - the construction workers who build the homes that fall under his remit.

As early as September, Javid was telling the FT he wouldn’t let any pesky UK border red tape get between him and foreign workers needed to meet his housebuilding targets.

Philip “Citizen of the World” Hammond

So if you can’t kick out builders, what about that perennially unpopular group of workers, bankers? Not so fast, says Philip Hammond.

Just three months after Brexit, he said the government would use immigration controls “in a sensible way that will facilitate the movement of highly-skilled people between financial institutions and businesses”. 

As a Chancellor who personally backed Remain, Hammond is painfully aware of the repercussions if the City decamps to the Continent. 

Greg “Brightest and Best” Clark

The Business, Energy and Industrial Strategy secretary backed Remain, and has kept his head down since winning the meaty new industrial brief. 

Nevertheless, he seems willing to weigh in on the immigration cap debate, at least on behalf of international students. Asked whether the post-study work visa pilot should continue, Clark said the government wanted to attract the brightest and best.

He continued:

"We have visa arrangements in place so that people can work in graduate jobs after that, and it is important that they should be able to do so."

Jeremy "The Doctor" Hunt 

The Health secretary kept his job in the turmoil of the summer, and used his conference speech to toe the party line with a pledge that the NHS would rely on less foreign medical staff in future.

The problem is, Hunt has alienated junior doctors by imposing an unpopular contract, and even those wannabe medics that do sign up will have to undergo half a decade of studying first.

Asked about where he plans to find NHS workers in Parliament, Hunt declared: “No one from either side of the Brexit debate has ever said there will be no immigration post-Brexit.” He also remained “confident” that the UK would be able to negotiate a deal that allowed the 127,000 EU citizens working for the NHS to stay. 

So it turns out we might need agriculture and construction workers, plus students, medics and even bankers after all. It's a good thing the government already has a Brexit plan sorted out...
 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.