There’s a hint of sunshine peeping out from behind the grey clouds of austerity.
After eight long years of belt-tightening, we’re living within our means at last.
Our taxes cover our day-to-day spending on things like health, education, policing and defence, so we’re only having to borrow to invest in long-term infrastructure like roads and rail.
So we can relax, right? Time to bid a not-very-fond farewell to tight budgets, open the spending taps, and let the good times roll.
Errr no. That would be a like an alcoholic celebrating staying sober with a double vodka. There’s a bit more money around, yes, but we can’t afford to go mad.
Take the national debt. Even though we’ve stopped adding to it, it’s still higher than its been for half a century. And, at some point, it’s got to be repaid.
Big government debts hamstring economic growth, crowd out private sector investment so wealth-creating projects can’t happen, and drive up interest rates to stifle growth and wealth creation for years.
Even worse, like that alcoholic with his double vodka, we’re lying to ourselves about the size of our problem. The real debt is much, much larger than the already-eye-watering level of government bonds.
If we’re honest about what we owe, we should include all the IOUs in the state pension and benefits schemes. We wouldn’t let financial firms like Prudential or Aviva ignore them, so why should governments be allowed to run a double standard? No company finance officer would last long if they tried to do the same.
It’s time to look ourselves squarely in the mirror, and admit our problem: we’re addicted to debt and, rather than another spending splurge, we’ve got to sober up.
The answer is a pool of assets, so we’ve got something to pay for all those IOUs when they come due. In other words, a British sovereign wealth fund, like Norway’s. Theirs is worth more than a trillion euros, investing in everything from West End London property to Facebook, Google and Amazon.
How can we pay for it? There are several choices but they all involve putting a little away for a long time, so the future costs don’t fall unfairly on any one particular generation of taxpayers.
For example, we could take the money we’re already spending on interest for the national debt, and carve it out of income tax as an identically-sized “National Debt Charge” (NDC), rather like National Insurance contributions.
As the economy grows while the debt interest stays level, the NDC would steadily yield small surpluses for investing in the fund. With compounding, it would solve the problem over several generations.
Or we could use publicly-owned assets as seed capital to get the fund going. We already have the National Fund, a £400m registered charity set up in 1928 to pay off our national debt. Or publicly-owned assets like the British Business Bank, or unused public land and buildings.
Then there are future new taxes from things like fracking. Norway’s fund was built on oil revenues, and while it’s too late for us to do the same, we may use other natural resources in future. If we’re depleting our natural capital, we should match and replace it by building up financial capital instead.
Or we could put aside a small fraction of the fabled Brexit dividend once we’ve left the EU, to invest for our long-term future.
Or, now that the government’s day-to-day budget is balanced after 10 years of austerity, we could invest the surpluses from good years so we’ve got something to fall back on in the bad ones.
Whichever of these options we take, the important thing is to start now. Like a pension, it’s far better to save a little when you’re young, so investments have plenty of time to grow, rather than trying to make it all up later.
Because the clock is ticking. The demographic timebomb of ever-more elderly people, with ever-bigger medical bills, social care costs and state pensions, funded by ever-fewer working-age folk, will go off in about a decade’s time.
If we do nothing, our children and grandchildren face a cold, mean future of much higher taxes and poorer public services throughout their lives.
However, if we get this right, we’d transform our nation. We would be more generationally-just, because we wouldn’t be saddling our children and grandchildren with massive, unfunded IOUs, and socially-just, because rich and poor taxpayers would all own the same stake in the new fund.
We’d be the biggest and most equal asset-owning democracy on the planet. Sobriety might be its own reward.