The Office of Budgetary Responsibility (OBR) had some pretty terrible news last week. It released its latest fiscal responsibility report, and it looked at the likely course of UK government debt over the next half a century or so. Its conclusions, well, let’s put it this way, they weren’t pretty. It seems the underlying problem here – and this really is a blow to the economy of terrifying magnitude – is that we are living too long. But then it gets worse, for it seems we are getting healthier too. So that’s a double whammy; lots of ageing people still in relatively good health. Can you imagine anything worse? But here is a thought – just a thought mind you – it’s probably a bit daft, but could it not be said that actually all this is good news? Call the massive team of journalists who make the economic force that is Investment and Business News old-fashioned if you will, but good health and greater longevity is considered by some to be a reason for celebration. The snag here really is that economists are so pre-occupied with their dismal science, and revealing their tales of woe that some pretty simple home truths that we can all understand get overlooked.
George Osborne may be patting himself on the back. A year ago, the OBR forecast that public sector net debt or PSND will hit 107 per cent of GDP by 2060/61. 12 months on, and with a few bits of jiggery pokery, a few cuts here, a bit of austerity there and suddenly the OBR is forecasting PSND of merely 89 cent of GDP by 2060/61.
The story in a little more depth looks like this. PSND is expected to fall from 74 per cent of GDP in 2015/16 to 57 per cent by the mid-2020s. But then the UK will be hit by all kinds of problems. We are ageing, which means that spending on pensions and health care is set to rise. At the same time, revenue from North Sea oil will eventually dwindle into a trickle and then next to nothing.
There is another snag, and it is one that is getting far less publicity than it deserves. But thanks to globalisation, it is becoming harder to draw tax revenue from corporation tax. While globalisation brings many benefits, it is not perfect, and indeed does come wrapped in many downsides, and its supporters do their case no favour by not acknowledging this.
But the OBR report gets even more dismal. First of all, it says it doesn’t really know (know what?), and the true underlying picture may be far worse. As for the overall picture, the OBR said that the UK’s fiscal position is not sustainable.
There is a snag with the OBR report.
Ask yourself these questions: why are we facing a pension crisis, and why is it that so many corporate pension schemes are in deficit? Listen to some and you would think it is all the fault of quantitative easing, of rock bottom low interest rates making it impossible for savers to enjoy a healthy return.
Actually, the real problem lies with something else entirely. The FSTE 100 peaked on January 30 1999. The last 12 or so years have been an absolutely terrible period for the stock market. The snag was that for a few years the economy did not reflect this. Rent seeking artificially boosted the economy, and the reason why the current downturn is so serious, is because we have to correct for years of boom based on very little.
After dotcoms crashed, we saw a reaction against investing in innovation, and turned to investment in low risk activities that did absolutely nothing for promoting real, underlying economic strength.
If you want to solve the UK’s fiscal time bomb, part of the solution lies in promoting innovation, not savings; in trying to get as high a percentage of the UK’s workforce tuned into the current industrial/technological revolution, rather than in squabbling about how debt is unsustainable, and how we have to re-trench.
As for taxes and debt, there is one fundamental truth that gets overlooked.
Thanks to advances in genetics, computers and prosthetics, and thanks to the Internet promoting global communication between researchers, medicine is going through a revolution of extraordinary promise at the moment, and it is one we should all be celebrating.
To take one example from this weekend’s press, the ‘Sunday Times’ colour supplement led with a story asking the question: “Can cosmetic surgery save your life?”
Medical advances are saving lives, improving the quality of life, making it possible, for example, for people with no legs to walk, or indeed – as is the case with Oscar Pistorius – run the 400 metres in 45.07 seconds, cure disease thought to be incurable, and enable older couples to enjoy an active love life, when once it may have been a physical impossibility.
But there are consequences to this. First of all, we are going to have to work for more years before we can retire, and secondly, we are all going to have to spend more on medicine.
Either we stick with the the NHS, and the idea that medical treatment should be free for all, or we limit the advances in medical science to the very rich only. If we opt for the former, then taxes must rise. There is no alternative.
But just remember, the alternative to paying more for our health care, is to keel over. What would you prefer?
©2012 Investment and Business News.
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© Investment & Business News 2013