Debt, that great weight of financial obligation, which according to Wilkins Micawber in the Charles Dickens novel David Copperfield, defines the difference between happiness and misery.
Both nationally and globally, its rising tide is the economic story of our times. And seemingly it has no limits.
New analysis by the Institute of International Finance (IIF) finds that globally, total debt including dues owed by governments, households and companies rose by a further $2.1 trillion (£1.57 trillion) in the first half of this year to a scarcely conceivable $312 trillion, or more than three times global GDP.
Nor is there any letup in sight. With interest rates now unambiguously on the way down, and the pressures on government spending – from defence to the planned energy transition and the costs of ageing populations – all on the way up, the buildup of debt is set to accelerate further still in the years ahead.
Projections in the IIF’s latest Global Debt Monitor suggest that government debt alone will rise from its current level of $92 trillion to $145 trillion by 2030, and then to more than $440 trillion by the middle of the century.
The world over there is little or no appetite for the fiscal consolidation needed to bring this spiralling burden of government borrowing under control, so up and up it goes – an apparent substitute for the real income growth that many mature economies, including the UK, are struggling to generate. Against the alternatives of painful decisions on tax and spend, simply borrowing more has become the easy, default option.
At some stage, you’d imagine that creditors would call a halt, but there’s been little sign of it so far beyond a number of high-profile but relatively small emerging market mishaps. This may be about to change.
For governments, the trick is to hide the rising tide of indebtedness behind a facade of supposed fiscal discipline. Yet the pretence is proving increasingly difficult to sustain.
No amount of tweaking of the fiscal rules by Rachel Reeves, the Chancellor, in next month’s Budget can disguise the need for significantly higher taxes to pay for the expansion in state spending her government has in mind.
She’d hate the parallel, but ironically Reeves has more in common with Liz Truss, the former prime minister she accuses of crashing the economy, than she cares to admit.
The shared goal is enhanced growth; Truss envisaged borrowing more to stimulate it, and so does Reeves.
The difference is that Truss wanted to borrow to cut taxes, while Reeves intends to borrow to fund government investment. Yet the overall fiscal impact is the same.
With the debacle of Truss’s mini-Budget still raw in the memory, Reeves plans to tread much more carefully by staying within defined fiscal rules.
But in the end, no-one is fooled. Debt is debt; there are plainly limits, even for a large mature economy such as the UK, on how far it can be pushed before it breaks the bank.
In any case, a furious debate has erupted on how the rules might be bent to allow for a looser fiscal target, and in particular, for more spending on pylons, prisons, hospitals and so on. The whole thing is a charade, but there it is.
The starting point is the questionable assertion that borrowing for public works pays for itself by stimulating higher growth. Yet even if we accept that this is true, the debt has to be serviced in the meantime. Like many other mature economies, the UK is already spending more on debt servicing costs than it does on education, defence, and other vital national interests.
Here’s a little history for those who think that further increasing the ratio of UK public debt to GDP – already at around 100pc – is justified by the public goods it creates.
It’s true that on a number of occasions in the past, debt to GDP ratios have been much higher than now, but always because of the very high expenditures associated with major wars – first the Napoleonic wars, then the First World War and then the Second.
All these wars were followed by a big rise in taxes to pay for them. It is unprecedented for debt to have risen on the scale it has over the past 25 years in peacetime.
“Rising government debt (as a share of GDP) tends to be a consequence of war”, says the economist Stephen King, author of When the Money Runs Out; the End of Western Affluence, “or, more recently, sustained economic disappointment, not a determinant of lasting economic success”.
Britain is not alone. All mature, advanced economies suffer from the same, ageing demographic, which almost inevitably requires governments to invest more and more in people who produce less and less.
It’s a vicious circle, with a rising tax burden on the productive part of the economy to pay for the needs of the unproductive part acting as a further deterrent to growth. The tax burden is high because growth has failed to match the increase in spending.
Borrowing more to invest in new hospitals, rail, roads and other public utilities is unlikely to materially change this dynamic.
Yet this is the slender hope on which Labour’s high command bases a large part of its plans for the UK economy.
Of all the changes that have been suggested to create the fiscal space for debt-funded investment, the most dangerous would be using the yardstick of “public sector net worth” (PSNW).
The concept might seem reasonable enough in theory. All corporate balance sheets are constructed on the basis that liabilities are offset by matching assets; the one pays for the other. Why not treat government finances the same?
For Reeves, the PSNW measure speaks perfectly to her central message – that there are benefits as well as costs to infrastructure spending. More to the point, it would open up tens of billions of pounds of additional fiscal headroom.
Yet sadly, PSNW also suffers from myriad different flaws and problems of definition, not least the difficulty of valuing public assets such as bridges that cannot be sold.
It’s also the case that even on the PSNW measure, the UK fares particularly badly against other major economies, with liabilities far outstripping assets.
But don’t take it from me; beyond believers in magic money tree economics, the idea has been universally panned. Both the Institute for Fiscal Studies and the House of Lords Economic Affairs Committee have found it to be simply not credible.
That leaves the Chancellor falling back on comparatively minor changes, such as the way the Government accounts for losses on the Bank of England’s programme of quantitative tightening, and on shifting some forms of capital spending off balance sheet.
But however much she ducks and weaves, the end game is inescapable. If she wants to spend more, she’ll have to tax more. And if she taxes too much, she’ll undermine private sector investment, and whatever might be left of British entrepreneurialism and wealth creation.
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