There’s an interesting post by Éoin Clarke on debt interest doing the rounds. It originally appeared on his blog, but was soon commandeered by LabourList — and little wonder why. Dr Clarke’s point is a perceptive and striking one. Debt interest, he says, is lower now than it was under John Major. The implication is that when George Osborne rattles on about the money blown on just “servicing our debt,” we should take it with an almighty heap of salt. It’s not, perhaps, as bad as all that.
Or, rather, that’s one way of looking at it. There are other ways, which I would list thus:
1) Going beyond 2011. Dr Clarke’s post centres around two graphs: one which shows debt interest levels as a percentage of overall government spending, and one which shows them as a percentage of GDP. He’s referring to these two ratios when he says that debt interest payments are lower now than they were when New Labour took over. As he puts it, “debt interest was 30 per cent higher as a portion of total government spending in 1998 than it is today.”
But, with debt, “today” is often not the problem. Tomorrow is. Brown’s deficit plan jacked up debt (and debt interest) over a 20-year period, according to the IFS. If we extend both of Dr Clarke’s graphs forward as far as we can, to 2015-16, then a grim trajectory is revealed: they both go up, more or less, to 1997-98 levels, even on today’s rock-bottom interest rates. Here’s the debt interest/spending one first:
And the debt interest/GDP one:
2) Real terms not ratios.