As this edition of CM hits the doormat, we should be just about at the start of the real election campaign, having already lived through a phoney two-year campaign.
What is clear is that the next government will be making some difficult decisions on public spending. While all the parties are saying that we cannot go on increasing public debt as we have done, the main area of difference seems to be when the cuts start, rather than if the cuts start.
Under Chancellor Gordon Brown’s golden rule, the government’s strategy was only to borrow for investment and not to fund revenue expenditure. This was fine when tax revenues were always projected to increase and the days of boom were the only days we knew.
Now, when you add the amount of investment that went off the balance sheet in the form of PFI and PPP, to be funded year in year out from that growing tax take, we have the paradox of the government claiming that both government debt had reduced and investment in the public sector had increased.
It is a neat trick as long as the underlying assumptions hold, ie that the boom continues and that the cycle of boom and bust is forever consigned to history.
The most recent investments in infrastructure will suck out all the money and leave us somewhat bereft. These are now securitised investments traded within the financial markets so default is not an option if we want to keep our national credit rating. The notion of closing brand new hospitals and schools to save money is ludicrous and I don’t see any political party having the stomach to do that, especially if, as the polls seem to be predicting, there will be a hung parliament.
Whoever wins the election has the most poisonous of chalices to sup from, which may explain why they all appear to be trying so hard to lose it.
I suppose the biggest of all paradoxes is that the most likely way to finance future infrastructure is through PPP/PFI-type deals.
But you can think of it as the equivalent of a junkie managing a drug habit. The habit begins to erode the ability to earn, then comes unemployment, followed by selling off any assets you have – and then there’s nowhere to turn except to mug people. So prepare for a mugging from whoever gets into office.
