“Neither a borrower nor a lender be.” So says Lord Polonius to his son Laertes in Shakespeare’s Hamlet.
Good advice for young people starting out in life, but the modern economy of the 21st century depends on the constant circulation of money and credit. We all need to borrow to buy a house, for University etc. Firms need to borrow for investment in equipment and working capital. Government needs to borrow to finance infrastructure. That’s good borrowing.
If, however, debt is being racked up to buy imported tack or fund boozy nights out, we would think of that as bad borrowing.
There has been much comment on the part that the increase in household debt has played in fuelling growth in the economy prior to 2008, and that it is the slow process of unwinding Britain’s massive debts – public and private – that is slowing down our recovery. Ben Broadbent, former Goldman economist and MPC member begs to differ The truth about UK debt. He points out that households’ total wealth, including housing, was worth eight-times annual disposable income at the end of 2010 and crucially, despite the rise in house prices and the subsequent recession, that’s above the 25-year average.
It is a similar picture for the business sector. Before the crisis, Britain’s private sector was borrowing from the rest of the world, but it was building up foreign investments to match. That’s in stark contrast with countries such as Portugal and Greece, who were indeed borrowing a lot more than they invested. Our net overseas debt, as a nation, is not enormously greater than other countries’. In any event, it is no larger now than it was in the mid-1990s.
For the first time, HM Treasury has prepared Whole of Government Accounts . These accounts put a value of £1.2 trillion on government assets and a similar figure on the liability side for borrowings and other liabilities. The net public service pension liability has been estimated at £1133 billion and this accounts for virtually all of the net liability reflected in the accounts. The major public service schemes, with the exception of the local government scheme, are met from general taxation as employees retire and draw their pension over a number of years.
The National Infrastructure Plan requires an investment of about £250 billion in the next five yrs and £ 400 billion over 10 yrs on infrastructure including high speed rail, energy, aviation, water and wastewater, roads and highways, and high speed broadband. This is a higher spend than in the past and signals a change in focus from social infrastructure such as hospitals to economic infrastructure. The intention is that 70% of the funding will come from the private sector.
We should not delay. Borrowing for economic infrastructure is good borrowing. It adds to the stock of productive assets in the Whole of Government Accounts and the public wealth we can pass on to the next generation.
* Joe Bourke is an accountant, former parliamentary candidate and Treasurer of Hounslow Liberal Democrats