The UK is Bankrupt with Nowhere to Go

With thanks to Brendan on the Telegraph Comment today

"I disagree that Greece and Ireland are more extreme cases than ours.

The official balance sheet debt of the UK does not include the state and public sector pension liabilities, nor PFI. Those three are respectively £1.4 trillion, £800bn and £250bn, so around £2.4 trillion in aggregate. And no, it’s not a typo, it really is trillion.

Added to the on-balance sheet debt, the UK taxpayer is now on the hook for liabilities amounting to more than 200% of GDP.

That would not be such a problem but for the fact that UK economy has just shrunk by 6% and does not have an obvious means of generating rapid and sustained economic growth over the next decade or so. Most commentators have overlooked the fact that the two other major countries that had significant financial centres – the US and Japan – are well diversified economies with strong manufacturing and export sectors.

What makes the UK so uniquely vulnerable is that beyond the City of London there isn’t really any world beating commercial base of any scale. Yes we are world leaders in Scotch whisky and cheddar cheese but this isn’t going to make a difference to a £2 trillion debt. Under Labour we have lost 1 million manufacturing jobs and added around 1 million public sector jobs, a straight swap of productive, wealth-generating employment for non-productive wealth-draining employment.

There is no easy route out of this. We do not have raw materials like Australia or Russia, cheap labour like China, specialist agriculture like Brazil or technology skills like India. We have over 5 million unemployed adults of working age and not really any prospect of putting them to work. Paying for their benefits, healthcare, education and pensions has brought the country to its knees.

It isn’t society that is broken, it’s the business model of UK plc.

So while France, Germany, the US and Japan can see a way out, we can’t. It’s remotely plausible, I suppose, that the City will spark back to life and save us, that private equity and hedge funds will ramp up again and borrowing will explode as before but I can’t see that happening in the current bank-bashing climate. Besides most of them will relocate to Switzerland to avoid the punitive taxes.

The UK is holed below the water line and it is in fact necessary now for there to be a major shock to allow the downsizing of our prosperity to occur without civil unrest. Ireland gives some encouragement that the population can be persuaded to accept much lower living standards without burning cars and throwing rocks at the police, let’s hope the same will be true here."