In the summer of 2008, several months before the collapse of Lehman Brothers and the start of the deepest recession since the 1930s, I gave a talk to senior colleagues at the BBC. My theme was that the Age of Plenty was over and that we were about to move into an era dominated by the Politics of Debt.
This would change the terms of political trade and force all politicians to rethink almost everything they stood for. It would mark the end of debt-fuelled capitalism, debt-financed socialism – and debt-drenched consumer spending. Politicians who wanted to spend more or tax less would no longer be able to do so by borrowing more.
The priority would be to reduce record levels of debt, not just government debt but the record borrowings of individuals and companies, too. And so it has come to pass.
British politics used to be about more hospitals or lower taxes. Cheaper fuel or better schools. More generous welfare or investment in roads and railways. Or all of the above. Those days are well and truly over, even if it has not yet dawned on all politicians.
There is, for now, no (or precious little) growth to share. Public spending is no longer a bottomless well. Further borrowing is seriously curtailed by the discipline of the bond markets.
Talk of bond markets can make the eyes glaze over.So let me simplify it: politicians have run out of money to splash around. They could tax the rich more but that produces modest extra revenues. Most people feel taxed to the hilt already. More borrowing – the default position of recent years – is curtailed by the fact we’re already heading for a national debt of £1.5 trillion.
There is no new money in this Age of Austerity. Those who sought our votes in the 2010 general election sort of admitted this in the campaign but for the most part were in denial. They recognised there would have to be a squeeze on spending but refused to spell out the extent or nature of the cuts.
I suspect that is why voters ended up trusting no party with an overall majority. Even as the Coalition sharpened its axe to take a swipe at spending and borrowing, the idea was to endure a few years of pain before normal play was resumed, in good time for the 2015 election, when voters could get to the task of deciding which party’s goody bag was the most appealing.
Last November’s mini-Budget put the kibosh on that. The outlook for tax, spending, borrowing and growth is pretty grim for the foreseeable future. Even the Coalition now thinks it won’t get the public finances into respectable order before 2017. If the Eurozone crisis is not resolved soon it could be much longer than that.
Some are now talking openly of a Lost Decade, much like Japan’s lost years after its great property crash at the end of the 1980s. Professional pessimists will no doubt point out that Japan has now endured two lost decades! It is clear we have passed a watershed and that the Politics of Debt challenges our politicians to abandon their traditional discourse and replace it with something more relevant and realistic.
It is a bad time for our wallets and purses, but a good time to be talking about politics and holding to account those who rule, and those who seek to rule. In fact, the need has never been greater. We must test what politicians have to say against the rigours of the Politics of Debt. The old verities, after all, are largely a busted flush.