Everyone is getting steamed up about the Police Pay Review and now Lord Hutton’s review of public sector pension provision. Trouble is as a nation we’ve been living beyond our means for quite a while. Do you remember, I’m sure you do, the last Labour Chief Secretary to the Treasury, Liam Byrne, leaving the following note for the incoming government,
“Dear Chief Secretary, I’m afraid there is no money. Kind regards – and good luck! Liam.”
The key Coalition policy is to reduce the deficit, and in doing so ensure that the financial markets see us as a well-managed and secure economy. Why is this important? Simply that we still need to borrow money to pay for our lifestyle, as we can’t yet pay for it out of what we earn as a nation.
Yeah, yeah, why not pay off our debts over a longer period to lessen the pain. Sorry, no can do. Can’t take that risk. This week one of the rating agencies downgraded Spain’s credit rating. Result, it will now cost them more to service their debt, cancelling out any policies to improve their financial situation.
We’ve all heard about the problems with Greece, Ireland, and Portugal. Now that Spain is now exposed to tougher borrowing conditions, it shows that bigger countries aren’t immune from being judged on their ability to solve their financial problems.
Spain’s credit rating was reduced a further notch to Aa2. In the UK we have a far, far bigger debt as a % of GDP than Spain, and we can’t afford to lose our triple AAA credit rating. Any increase in the cost of servicing our much larger debt would be crippling.