There are few people in the developed world who still cling to the maxim that “home life ceases to be free and beautiful as soon as it is founded on borrowing and debt”.



These days we can’t afford to take the same view as Helmer, the husband in Ibsen’s A Doll’s House, one of literature’s most cautious budgeters.

It’s a nice idea to be free of debt and just spend what you earn. But when a home costs many times the average annual income and life’s running costs often exceed the monthly income, borrowing is not something that can be avoided.



The government knows this only too well. This week sees publication of the public borrowing total for May and it is not expected to make pleasant reading. Together with April’s shocker, when government borrowing was higher than the same month last year, the first two months of this financial year are forecast to show the borrowing requirement for the year is on track to be higher, not lower than last year.

When David Cameron and George Osborne were in Downing Street, bringing down the deficit was the main aim of domestic policy. Until just last year, the plan was to cut the deficit to zero by 2020 and start bringing down the debt-to-GDP ratio from this year.

The EU referendum vote and Theresa May’s arrival at No 10 changed all that. Once she adopted a hard-Brexit stance, the economy began to turn. Her chancellor, Philip Hammond, was forced to loosen the purse strings.

It meant that both of the main political parties went into the election with plans for the deficit to remain at about 2.5%. Independent forecasts for GDP growth over the next five years are below this figure, meaning that far from cutting the overall debt-to-GDP ratio, both parties were content to push it towards 90% – higher than any government has experienced in 50 years.

That’s why so many headlines after the election have declared austerity dead and why the deficit was the dog that didn’t bark when the electorate went to the polls.

The pressure on the deficit has only worsened since then. It has become clear to many of May’s advisers and close colleagues that the Tory party might not survive a second election this year without stealing some of Labour’s clothes.



There is the possibility she will sanction scrapping, or dramatically reducing tuition fees, to nullify one of Labour’s most popular pledges.

The health secretary, Jeremy Hunt, hinted that the cap on nurses’ pay might be relaxed, while local authority spending may need to increase after the Grenfell Tower fire.

Meanwhile, household debts are on the increase. Credit card, car loan and student debt, and borrowing using that most pernicious of loans, the second mortgage, have all risen sharply in the last couple of years. Making matters worse, the proportion of savings in the economy is at rock-bottom levels.

It all adds up to an economy running on empty, with everyone, including ministers, borrowing extra each year just to keep the wheels turning.

At a time when the official figures show employment at a record high and unemployment at a historical low, the workforce should be enjoying wage rises of at least 4% or 5%. Workers should be building up their savings and rejecting overtures to borrow more from greedy lenders.

It is a constant refrain from ministers that the mark of a successful economy is full employment and Britain passes that test with flying colours. But in Britain, as elsewhere in the developed world, workers are powerless to bid for higher wages.

In the US, there is an army of people, many of them women, who make no claim on the state for benefits, but stand ready to take well-paid jobs should they become available. In France, Italy and across much of the continent hordes of young people are kept like circling aeroplanes above an airport, ready to land whenever a slot opens and a job becomes available.

In the UK we have colossal numbers of workers from all ages and both sexes on zero-hour contracts and in part-time work who would like more hours and security should it be offered.

The combination of all these trends allows employers to keep wage rises at about 2%. These are the same employers who, despite enjoying a cut in corporation tax from 28% since 2010 to 19% today under the Conservatives and the promise of 17% by 2020, are hoarding profits and investing very little to increase output.

Without strong increases in average wages now that inflation has returned, workers must borrow to maintain their standard of living. It also means income tax revenues have failed to rise as expected, hurting the exchequer and forcing the government to borrow more than it believes prudent.

Far from being the strong economy of Osborne’s imagination, sobered up by austerity and bolstered by deregulation of the labour market, Britain stumbles towards the end of the century’s second decade, and more immediately the Brexit talks, like a first world war soldier back from the trenches, shellshocked and hobbling.

Osborne’s plan to reduce the deficit indicated Britain’s weakness because it could only succeed once consumers accepted the need to borrow and spend again like they did before the financial crash. And they could only perform this task with the help of zero interest rates, kindly supplied by the Bank of England.

That the economy now needs the government to match the appetite of households for extra borrowing shows it is not only weak but in a perilous state.

The Norwegians, unlike in Ibsen’s time, no longer need to worry about debt. Norway has a surplus of savings-to-GDP ratio of about 280%, the largest in the world. Oslo has its own worries of course. But the pressure is to stop its population from becoming idle as its carefully managed oilfields spew more cash than anyone can legally spend.

Britain, on the other hand, continues in the other direction, its oil money already spent, with No 10 planning to cause even more harm by negotiating a hard Brexit that disturbs the operations of almost all large employers. Hammond said on the BBC1’s Andrew Marr show on Sunday that he wants a softer landing, by which he means a free trade agreement with Europe. He might be the chancellor, but the issue is whether he has any power.