You might have heard it’s Budget Day in the UK.
We’re not here to opine on the use of the ritual, nor what is going to be contained in Chancellor, and political PR experiment, Rishi Sunak’s budget. We’ll leave that to the great and the good of the FT’s economics and politics team.
But one thing we want to remark on is a popular meme in UK political discourse. Most recently expressed by this tweet from the BBC a few moments ago (and update: just deleted):
You might have seen variations on this over the past decade. Popular versions include “fixing the roof while the sun is shining”, the government “maxxing out its credit card”, and the national debt being a “burden on future generations”. During these discussions, the dreaded debt-to-GDP metric is occasionally dropped, with some debunked upper limit around 90 per cent at which the UK supposedly goes bankrupt often quoted.
All notions that stem from the idea government finances are equatable to household finances. You — the consumer — don’t borrow too much, or you risk delinquency. So why should the government be able to evade the rules of good husbandry?
The issue with this meme are myriad, and have been covered in-depth over the austerity period. They can be summed up in two words: debt markets. Or, for those of you with particularly short attention spans, two letters: QE.
Even as a simple metaphor, it’s also just plain wrong.
Households regularly borrow far in excess of their income. In the UK for instance, if you’re a good credit, you can get a mortgage at 4-4.5 times your salary. In household budget metaphor land, that would be a debt-to-GDP ratio of 400 to 450 per cent. While the current government likes to talk up the benefits of tightening its own belt, it is only too eager to encourage citizens to get on the housing ladder.
The current debt-to-GDP ratio in the UK? 106 per cent. Time to lever up.
