It's not burdening our children with debt that should worry us

Leaving our children without assets is a far greater problem than "saddling" them with debt.

It is irresponsible to saddle our children with debt.

One of the most compelling, at least superficially, arguments for austerity. It is used globally; it resonates powerfully. After all, it appeals to the very best facets of human nature – the instinct to nurture; the wish to leave things better for future generations – and is, therefore, almost irresistible. But there are few things more dangerous than rhetoric designed to entangle the heart, while bypassing the brain.

Let us suppose that I knew, tomorrow I would be no more. The appointment has been made; the plane tickets to Geneva have been booked. If I were leaving behind my house to my child, encumbered as it is with a mortgage, would I worry? It is a huge amount of debt, but the house is worth almost double its mortgage. The interest is low. To look at that scenario and arrive at the conclusion I am “saddling my child with debt” would be highly irrational. I would have left them with positive equity.

It is illogical to assess the legacy we bequeath to the next generation, solely in terms of debt. Assets should form part of the equation.

This was precisely what our parents’ generation decided to do. And their parents’ before them. National debt, as a percentage of GDP, was much higher from the 20s to the 70s than it is now. But they made the positive choice of bequeathing it to us, as well as a world-class National Health Service, free education, thriving industry, bright prospects and a system of welfare which provided a safety net for the less fortunate.

Had they looked at debt in isolation, they would never have achieved any of these things. Luckily, they did not. They left us with positive equity.

The proposition put forward by the coalition government in support of their programme of cuts, is the bequest of a clean slate. In the current economic climate, however, a clean slate means clean of assets, not clear of debt.

With the economy stagnant or shrinking, the reality is that this government will fail to make a dent in the deficit and actually increase debt. According to the OBR our annual deficit is falling at exactly the same rate it was projected to do before any of these cuts. The national debt is projected to rise by a staggering half a trillion pounds, even by the most lenient of estimates. The OBR now admits that austerity is hurting the economy. The IMF now admits that austerity is hurting the economy.

On the other hand, there is another, even gloomier forecast. By squeezing ordinary people, by forcing them to remortgage, to use credit cards, to run to the nearest payday lender, private household debt is predicted to balloon by an additional half a trillion pounds.

So, forget this insidious idea that we might leave our children with a clean slate. It is fantasy. In fact, under this government, we will leave our children with at least one trillion more debt than we had in 2010. The only intelligent conversation to be had, is whether we leave our children with the assets, skills, environment and tools to manage that debt or not.

Not all asset stripping is fiscally responsible in the long term. Not every expense incurred results in debt. Off-the-cuff, misconceived policies to try and regulate a rampant energy industry are ample demonstration of that truth; a conservative government flailing in a futile attempt to control the profiteering which resulted from another conservative government’s privatisation programme.

We are paying through the nose, both in terms of tickets, subsidies and maintenance, for a rail network franchise system which is manifestly failing. Meanwhile, the part of the network which has been state-run for the last few years (as a result of the last botched franchise), is better and cheaper than it was in private hands and turning a profit.

We pay to bail out private banks, then complain that they are not lending to SMEs, when we actually part-own two of the biggest. Nationalisation is both a rational solution and a dirty word.

Meanwhile, we are allowing these failed experiments to go on, to expand even; the self-interested privatisation of the NHS, the cut-price sale of local council assets and social housing, the dismantling of the welfare state, the farming out of police and prison services, the poisonous influence of profit on our schools. Within five years, the UK will be spending less on public services than any developed nation.

Make no mistake. What is actually being proposed, is leaving our children with negative equity. The debt will still be there, but the assets will be gone. Important assets at that, the absence of which will translate into higher living costs, in perpetuity. The sale of state housing inflates rents. Lack of a welfare system deflates wages. Tuition fees enslave the next generation to financial institutions which we know to be corrupt. Healthcare bills are the single biggest cause of bankruptcy in the US.

Maybe this is the future that we genuinely want. But let us consider all the arguments, instead of wielding an axe at any expense with no thought of whether it is necessary or cost-effective. Let us look at debt in conjunction with the assets and values that would also form part of our bequest.

Our current predicament is precarious. Even more critical, then, to make rational, informed and brave choices - rather than terrified, ill-thought ones. For our sake and that of our children.

Demonstrators call for an end to the national debt outside Parliament last year. Photograph: Getty Images.

Greek-born, Alex Andreou has a background in law and economics. He runs the Sturdy Beggars Theatre Company and blogs here You can find him on twitter @sturdyalex

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Why Theresa May won't exclude students from the net migration target

The Prime Minister believes the public would view the move as "a fix". 

In a letter to David Cameron shortly after the last general election, Philip Hammond demanded that students be excluded from the net migration target. The then foreign secretary, who was backed by George Osborne and Sajid Javid, wrote: "From a foreign policy point of view, Britain's role as a world class destination for international students is a highly significant element of our soft power offer. It's an issue that's consistently raised with me by our foreign counterparts." Universities and businesses have long argued that it is economically harmful to limit student numbers. But David Cameron, supported by Theresa May, refused to relent. 

Appearing before the Treasury select committee yesterday, Hammond reignited the issue. "As we approach the challenge of getting net migration figures down, it is in my view essential that we look at how we do this in a way that protects the vital interests of our economy," he said. He added that "It's not whether politicians think one thing or another, it's what the public believe and I think it would be useful to explore that quesrtion." A YouGov poll published earlier this year found that 57 per cent of the public support excluding students from the "tens of thousands" target.

Amber Rudd, the Home Secretary, has also pressured May to do so. But the Prime Minister not only rejected the proposal - she demanded a stricter regime. Rudd later announced in her conference speech that there would be "tougher rules for students on lower quality courses". 

The economic case for reform is that students aid growth. The political case is that it would make the net migration target (which has been missed for six years) easier to meet (long-term immigration for study was 164,000 in the most recent period). But in May's view, excluding students from the target would be regarded by the public as a "fix" and would harm the drive to reduce numbers. If an exemption is made for one group, others will inevitably demand similar treatment. 

Universities complain that their lobbying power has been reduced by the decision to transfer ministerial responsibility from the business department to education. Bill Rammell, the former higher education minister and the vice-chancellor of Bedfordshire, said in July: “We shouldn’t assume that Theresa May as prime minister will have the same restrictive view on overseas students that Theresa May the home secretary had”. Some Tory MPs hoped that the net migration target would be abolished altogether in a "Nixon goes to China" moment.

But rather than retreating, May has doubled-down. The Prime Minister regards permanently reduced migration as essential to her vision of a more ordered society. She believes the economic benefits of high immigration are both too negligible and too narrow. 

Her ambition is a forbidding one. Net migration has not been in the "tens of thousands" since 1997: when the EU had just 15 member states and the term "BRICS" had not even been coined. But as prime minister, May is determined to achieve what she could not as home secretary. 

George Eaton is political editor of the New Statesman.