Economy: bonds, austerity, debt and the Age of Plenty
- 9 January 2012
- From the section UK Politics
In the summer of 2008, several months before the collapse of Lehman Brothers and the start of the deepest recession since the 1930s, I gave a talk to senior colleagues at the BBC.
My theme was that the Age of Plenty was over and that we were about to move into an era dominated by the Politics of Debt.
This would change the terms of political trade and force politicians on the right, left and centre to rethink almost everything they stood for.
It would mark the end of debt-fuelled capitalism, debt-financed socialism - and debt-drenched consumer spending.
Politicians who wanted to spend more or tax less would no longer be able to do so by borrowing more.
Boom and bust
Indeed the priority would be to reduce existing record levels of debt, not just debt incurred by government but the record borrowings of individuals and companies too.
And so it has turned out to be. British politics used to be about more hospitals or lower taxes. Cheaper fuel or better schools. More generous welfare or investment in roads and railways. Or all of the above.
Gordon Brown declared the end of boom and bust and envisaged endlessly rising public spending. The Cameron Tories largely agreed, with only a few wrinkles on how to "share the proceeds of growth" (the possibility of no growth was not considered).
As Labour presided over an unprecedented rise in public spending, the Liberal Democrats called for even more.
Those days are well and truly over, even if it has not yet dawned on all politicians. There is, for now, no (or precious little) growth to share.
Public spending is no longer a bottomless well. Further borrowing is seriously curtailed by the discipline of the bond markets.
All mainstream politicians agree that they must cut borrowing in the medium-term then begin the painful long-term reduction in accumulated national debt. Individuals and companies are doing the same.
When journalists talk about bond markets eyes can glaze over.
So let me simplify it: the politicians have run out of money to splash around. They could tax the rich a bit more but that produces modest extra revenues and is subject to the law of diminishing returns. The vast majority of folk feel taxed to the hilt already.
More borrowing - the default position of recent years - is seriously curtailed by the fact we are already heading for a national debt of £1.5 trillion.
There is no new money in this Age of Austerity. Those who sought our votes in the 2010 general election sort of admitted this in the campaign but for the most part were in denial.
They recognised there would have to be a squeeze on spending but, despite the efforts of interviewers like myself, refused to spell out the extent or nature of the cuts.
I suspect that is why voters ended up trusting no party with an overall majority.
Even as the coalition sharpened its axe to take a swipe at spending and borrowing, the idea was to endure a few years of pain before normal play was resumed, in good time for the 2015 election, when voters could get back to the traditional task of deciding which party's goody bag was the most appealing.
Last November's mini-Budget put the kibosh on that. The outlook for tax, spending, borrowing and growth is pretty grim for the foreseeable future.
Even the coalition now thinks it will not get the public finances into respectable order before 2017. If the eurozone crisis is not resolved soon it could be much longer than that.
Some are now talking openly of a Lost Decade, much like Japan's lost years after its great property crash at the end of the 1980s.
Professional pessimists will no doubt point out that Japan has now endured two lost decades.
We do not know what is in store for us. But it is clear we have passed a watershed and that the Politics of Debt challenges our politicians to abandon their traditional discourse and replace it with something more relevant and realistic.
It is a bad time for our wallets and purses - but a good time to be launching a new political programme.
We are in uncharted territory and the responsibility to hold to account those who rule and those who seek to rule has never been greater. The old verities, after all, are largely a busted flush.
The Sunday Politics launches on 15 January on BBC1. The centrepiece of the show will be an extended interview with a senior politician.
The aim will be to be fair but forensic - to test what they have to say against the new rigours of the Politics of Debt. I hope you will join me.