Tackling the Debt Crisis

Written by Colin Breed on Tue 16th Mar 2010

An American President once famously said before an election "it's the economy stupid" and had the slogan printed in large letters for his study and his campaign headquarters. Quite simply it was reminding everyone that whilst there are always myriad policy issues to consider when choosing a political party or candidate at an election, most people still decide on their choice based on what it will mean for their pocket or the family budget. The received wisdom is that no-one ever won an election promising five years of hard graft, of increasing taxes and reductions in public services.

The general public, however, is beginning to understand that election promises can so often be forgotten once a Party is in power. Some even promise that magical formula of increasing services and reducing taxes based on "efficiency" savings. The offers from the three main political parties seem to recognise that things are so bad none can get away with avoiding cuts and increasing taxes because the debt mountain is so large.

Running a country's economy was likened by Mrs Thatcher to a household budget, but perhaps today it is like running a large multinational corporation. All businesses have to operate efficiently and budget appropriately. They borrow, invest and declare dividends to shareholders. In my banking days I came across many businesses which were over borrowed, sometimes dependent on one particular customer or product and sometimes had fallen foul of some domestic or international crisis.

I am struck how similar it is to UK PLC - over borrowed, too dependent on financial services and then hit by a sub-prime property crisis in the USA. The answer to business was to regroup, stop spending on non-priorities, close down peripheral subsidiaries and put the debt on a sensible reduction programme. Far too often businesses produced overly ambitious loan repayment schedules, presumably because they thought it would please the Bank Manager. In fact, I rejected many because all they would do was soak up liquidity and deny replacement investment so that within a year or so the business was right back where it started.

That is why Liberal Democrat policies for dealing with our debt mountain are more realistic. Whilst Gordon Brown has ditched prudence, it is now time to employ patience. Tackling our country's debt will require careful and skilful management, not ideological political points scoring. Above all, it requires a patient but disciplined reduction programme which will not jeopardise the country's future economy.