Whilst the international attention is all about the Greek crisis, last week’s report by the UK’s Office for National Statistics reveals our own country’s parlous financial condition.

As at May 31st 2011 Public Sector Net Borrowing (PSNB) was £920 billion, or 61% of GDP. When the present coalition government came to power twelve months ago the debt was £778 billion. When the UK went to the IMF for help in 1976, the inflation-adjusted figure was half of this.

And of course the £920 billion figure is the most understated representation of the national debt that the government’s statisticians can produce. A more holistic measure of UK debt would aggregate £250 billion of now on-balance sheet Private Finance Initiative (infrastructure) liabilities and £1.2 trillion of unfunded public sector pension exposures together with the PSNB figure. And this sub-total assumes no long-term cost in respect of the bailed out bank stakeholdings.

Excluding bank bailouts, the deficit (rate of growth of the debt) for May 2011 was £17.4 billion compared with £18.5 billion for May 2010.

The coalition have boasted of bold and brave cuts. Police budgets, armed forces expenditure and local government subsidies have been cut, yet total public spending is up 4% year on year.

Other cuts have been announced and then rescinded in the face of fierce counter campaigning. Forestry was to have been sold, the NHS was to have been radically restructured, and the welfare (benefits) system overhauled. These supposed cuts have either been officially rescinded (forestry) revised and watered down (NHS) or, in the case of welfare reforms, likely both to increase public expenditure and harden the divide between the generationally workless and those actively seeking work. Frank Field, a Labour MP boasting excellent social inclusion credentials, recently observed [1] that these two groups will be further divided as a direct result of two new Coalition proposals. He describes the combination of means tested benefits and lightly regulated government support for businesses taking on the unemployed, as “Gordon Brown on speed”. The recently laid off will be targeted by such businesses, not the long-term unskilled workless who will have little incentive under the benefits rules to apply for work.

International readers might think this a good opportunity for the opposition Labour party, ousted in 2010 after 13 years in power, to exploit the Coalition’s economic plight. Not so. Mindful of their role in presiding over the accumulation of the debt their Treasury spokesman, Ed Balls, refused [2] to regret any of his government’s borrowing. He explained that the need for retrenchment today stems only from the 2008 banking collapse which was a global problem and therefore not one to be laid at the door of the then incumbent government. He did admit that he and his colleagues were not strong enough on bank regulation. Far from criticising the Coalition for failing to get the debt under control today, Labour prefers to focus on the social costs of the modest cuts undertaken and argues that they would have made broadly the same level of cuts, but implemented them more slowly.

The two political sides therefore differ very little on the measures to be undertaken, giving little impression of expertise in addressing the impending debt crisis. Perhaps, however, both sides know what needs to be done but are scared to say so, let alone embrace the necessary policies.

One of the UK’s major problems is its appeal as a migration centre. The UK’s generous benefits system and lax checks on qualifications unsurprisingly sees the population growing rapidly. In the last 12 months, 87% of the 400,000 new British jobs have gone to migrant workers.[3] Membership of the European Union is a common policy of each of the three major UK political groups, and all EU citizens are welcome and no British party has any plans to curb the steady influx of people as the EU enlarges itself.

The ONS report reveals that the national debt is no longer within the government’s control. A significant volume of the debt is inflation linked. The effect of near zero interest rates and money printing has caused retail prices to rise strongly. The interest bill for the last 12 months was £45bn, or 1/3 of the £133bn in the y.o.y. increase in national debt.

Borrowing is literally therefore out of control and truly radical measures are needed to address it. The benefits system and the National Health Service should be significantly pruned. The difference between the UK and Greece is that the UK has its own currency and can print more of it. Unless the Coalition gets control of its expenditure I fear the launch of our own QE2. A second dose of QE would be disastrous, leading to currency failure and hyper-inflation.

[2] June 19th Andrew Marr show, BBC2 – TV.

[3] Frank Field article, as at 1 above