Who will repay the national debt
We know that the government’s borrowing spree is going to have to be repaid by someone. But who? That’s the question the Pre-Budget Report ought to address.
After years of prudence we are drifting by default into accepting that the world, nevermind the UK, must borrow its way out of trouble. If there is any debate it is about how massive the borrowing must be and where it is spent.
And there is an acceptance that we will have to pick up the tab for this spree when the “good times” return. There are certain parallels with the necessary deprivations of wartime and the austerity years that will have to follow when the peace is won.
But who will ultimately pay for the spree? In simple terms, a government can tax people, tax business or hope something turns up. The latter is not impossible: North Sea oil and G3 mobile-phone licences have provided UK public finances with an unexpected bonus in the past but, although the state now owns a large tranche of the banking system, it would be irresponsible to bank of another such windfall.
Which leaves companies or consumers, and business should be worried in case it is hit directly with higher taxes rather than indirectly through its customers being taxed.
Higher corporate taxes are only likely to encourage more big companies to go offshore to avoid payment. That puts a greater burden on those firms too small or too loyal to move their corporate base. A hint on whether the borrowing will be repaid by small or large companies would be useful in the Pre-Budget Report.
But a hint on whether it will be rich or poor consumers would be useful too. Taxing the poor has obvious practical problems: it is easier to tax those with money. But this suggests the borrowing spree is likely to lead to a major redistribution of income in which smaller companies and richer people suffer most.
Who repays the debt ought to be the key difference between the political parties at the next election. But an indication that the government has a plan for who repays ought to be included in the Pre-Budget Report.
