If inflation is a bad thing, why is government policy designed to make us want more of it?

Britain is awash with debt, while government policy encourages inflation. But theoretical inflation sorts a lot of stuff out, while actual inflation will hurt.

So, you want to buy your first house. Let's assume (I know, I know, cloud cuckoo land, but let's go with it) you've scraped together a deposit and have persuaded someone to give you a mortgage. You'll be borrowing, on average, around £117,000. Oh, but that's assuming you're not in London. If you are, you're looking at more like £193,000 instead.

You've probably got some other debt outstanding too; most of us have. Last May, the average consumer borrowing - credit cards, overdrafts, car loans and so on - stood at around £3,207. That's an average, mind, so for a lot of us it's a lot more. Oh, and it had, by June, risen - only by £4, admittedly, but still, every little hurts.

Then there are student loans. In 2011, the Push university guide reckoned these averaged out at around £5,680 per student per year. That was before the new tuition fee regime, of course, and now you're probably looking at somewhere closer to £12,000 to cover fees plus maintenance. The resulting hole in your finances isn't really debt - even the government doesn't expect most of it to be paid back - but is more like an extra tax levied on those foolish enough to be born after 1993 (serves ‘em right). Nonetheless, it does mean yet another big red stain on the finances of those starting out in life.

The point, in case it's not quite sledgehammer enough for you, is that Britain is awash with debt - and the younger you are, the more likely you are to be drowning in it. Coalition ministers have spent a lot of time talking about how immoral it is to run up the nation's credit card and leave our children to pay it off. But they've seemed surprisingly blasé about running up our children's actual credit cards, and have cheerfully gone around loading them up with tuition fees and inflating the housing bubble all over again. Reports from the Office of Budget Responsibility, indeed, have been pretty explicit in their expectation that cuts to the deficit would be matched by a vast increase in personal debt.

All this is obviously horrible for those who'll have to pay those debts. But I wonder if it could have a more profound effect on the nation's attitude to its finances.

We're still living in an economic consensus defined, broadly, by the Thatcher government. For much of the seventies, inflation had run at over 10 per cent, which was commonly thought A Bad Thing. Thatcher's economic policies - monetarism, deindustrialisation, a strong pound - were all intended to get inflation down to the sort of level which didn't scare the bejesus out of investors, and keeping inflation low has been one of the main goals of policy ever since.

Now, though, a large and growing chunk of the population would, in the long term, do quite nicely out of spot of inflation. More than that, they're relying on it: some of the mortgages handed out over the last decade haven't got a hope of being repaid unless nominal wages start to spiral.

Think this through for a moment. If you woke up tomorrow to find that wages and prices had both doubled overnight, then the value of whatever debt you're sitting on has effectively halved. More than that, though, the value of the debt the government is sitting on has halved, too. Oh, and with a cheaper pound, suddenly Britain's exports look more competitive too. Halve the value of money in this country, and a lot of our problems suddenly look soluble. (This is economic model that used to work so well for Italy.)

The real world is not so kind, of course, and real inflation would be a lot more painful than that. Interest rates would rise. Holidays would become more expensive. The five or six British people still sitting on savings would see them whittled away, and anyone about to retire gets shafted.

Worst of all, wages are extremely unlikely to move in lockstep with prices, and those that lag most would likely be the ones paid to those with least bargaining power. That means, in all probability, the poorest. Those same people are also the least likely to benefit from an increase in asset prices (houses again, mostly) that'll accompany any inflation.

Oh, and there's the tiny problem that the deficit means we're still dependent on the faith and credit of the international bond markets. Theoretical inflation sorts a lot of stuff out. Actual inflation will hurt.

Nonetheless, though you'll never catch them saying it out loud, this seems to be the plan the government have lumped for. To get out of the mess we're currently in, there are only really three options. One is a sustained and historic boom (unlikely). Another is default (horrible). The third is to try to inflate the debt away and hope nobody notices. If you're young, middle class and sitting on a massive mortgage, this works in your favour. If you're an investor, a pensioner, or, worst of all, poor, it doesn't.

All the reasons inflation was bad in the Seventies still apply. There are many good reasons for wanting to keep it down. But we can't have everything. The larger the share of the population that is sitting on unsustainable debts, the less frightened of inflation the electorate will become. Any monetarist baby boomers out there might want to think about that, next time they're talking gleefully about how much their house is worth.

A boy with a kite made of banknotes in Germany during the depression of 1922 when escalating inflation rendered much of the currency worthless. Photo: Getty

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.

Show Hide image

Calais Jungle: What will happen to child refugees when they leave?

Hundreds of unaccompanied child asylum seekers are being taken to Britain where they face an uncertain future.

Hundreds of unaccompanied child asylum seekers are being taken to Britain, moved from a camp in Calais, northern France, as its closure begins. There were 387 unaccompanied minors in the French refugee camp known as “the Jungle” with links to the UK and they are arriving in England in groups of 70.

Upon arrival, the children are taken to a secure unit for 72 hours, before being reunited with families already living in the UK. They are from a group of more than 1,000 children who have been living in the camp in recent weeks. And now, some of those without links to Britain, but who are regarded as particularly vulnerable, are now also being taken across the English Channel.

The youngsters were granted asylum under the Dublin Regulation. The children’s move to Britain has stalled twice already, over delays in accommodation and establishing proof of age. Migrant children have been subjected to intense media scrutiny upon arrival in recent weeks. Calls for dental checks to verify the true ages of youngsters who looked older were called for, but the UK government branded such a practice as “unethical”.

For a long time, the minors living in the camp faced an uncertain future, but the move to take some children to the UK signals a change of tack by the British and French governments. Britain has been criticised for its lack of humanity, but it now seems that the pleas of these children at least have been heard.

Impact of war

While the youngsters may have escaped serious physical injury, the conflicts in the Middle East will have taken a psychological toll on them. Living in the midst of war, many have witnessed unspeakable horror, losing family members in brutal circumstances. Consequently these youngsters are now incredibly vulnerable to mental illness, with research indicating that more than 80 per cent are likely to develop issues such as post-traumatic stress disorder (PTSD).

It is important to remember a child’s trauma extends far beyond the experiences that resulted in them fleeing their homes. The children going to the UK now endured prolonged exposure to stress-inducing conditions in the Calais camp, and will now need to adjust to their new cultural surroundings.

War directly affects millions of children everyday. Exposure to conflict and acts of terrorism can lead to the development of acute or chronic stress reactions. Research also indicates that the psychological impact of war on children is likely to have long-term effects – they don’t simply “grow out” of their stress-related symptoms. Continued exposure to traumatic events, as these children have experienced, carries a cumulative impact too, that can worsen the severity of post-traumatic symptoms.

Funding challenge

The children going to Britain will need the right sort of trauma-based therapeutic support so they can successfully move forward before chronic conditions take hold. However, mental health services in the UK are desperately underfunded. More than 850,000 children and young people have a diagnosable mental health disorder, and half of all lifetime cases of mental illness begin by the age of 14. But just seven per cent of the total mental health budget is allocated to child and adolescent mental health services, with one in five young people refused treatment because they do not meet the criteria for care.

A recent poll of specialist nurses found 70 per cent thought child and adolescent mental health services in England were inadequate due to historic under-investment. The government is under growing pressure to invest more, and it is hoped that the arrival of these children will see additional money allocated to the services. When, or even if, this will happen, remains unclear.

Post-traumatic growth

While many of these children are likely to suffer form long-lasting psychological symptoms, there is a possibility that some may emerge stronger than they are now, benefiting in some way from the experience resulting in positive post-traumatic growth, or PTG. PTG is possible in children who have been affected by war trauma, particularly if they are young, as they are more open to learning and change. Interestingly, research has revealed that even the negative aspects of PTSD do not “block” growth when children are placed in a supportive environment – found to be the most conducive thing for PTG.

Receiving the proper social support will play an important role in helping these children deal with the psychological effects of war trauma. The complex situation that the young and unaccompanied migrants have faced calls for help that addresses both the trauma and grief, and will secure continuity in their new lives in the UK.

Losing loved ones is just one of many extremely traumatic experiences these children may have faced, and it could prove quite difficult to disentangle the effect of the loss from other stresses and changes. Time does not simply heal the long lasting scars of prolonged stress that they have experienced. However, it is vital that society does not write these children off as ill or broken. With the right support they can lead full lives and make strong contributions in their new homes.

Leanne K Simpson, PhD Candidate, School of Psychology | Institute for the Psychology of Elite Performance, Bangor University

This article was originally published on The Conversation. Read the original article.