TEMPTING though it is, one should not attach too much importance to the decision by Moody's to strip the UK of its AAA credit rating.
After all, this doesn't tell us anything we didn't already know – Britain is a debt-junkie, incapable of living within its means.
Even so, this is a useful opportunity to examine some basics. For a start, the government simply spends too much relative to its revenue-generating capability.
Of course, tax rates can always be raised, but here's why this doesn't work. If the government raises taxes on, say, high earners, it gets less money in, not more. Increase taxes on essentials and you might raise some money, but you impoverish working people, and the ones you hit the hardest are the poorest. Raise taxes on multinationals and many either leave or just don't pay up. Increase taxes on smaller businesses and the economy suffers. And so on.
In short, we're at the revenue limit. We have not only reached, but gone well beyond, the private sector's willingness or ability to fund the state.
Borrowing is neither a sustainable long-term option nor even a viable near-term one. Where interest rates are concerned, the rating downgrade can only add to the pressure which sterling is already under. Of Britain's 11.5 million mortgage payers, most are on variable rates, and official figures show that a rate rise of just two per cent would be enough to put half of these households in real trouble. Don't even ask how a mortgage rate squeeze on household disposable incomes would affect the high street, but do ask yourself what might happen to commercial real estate (and the banks) when rental streams dry up.
So that leaves us with spending cuts. It's not a nice option but, where Britain is right now, there are no good choices, only bad ones or worse ones. In America, Medicare spends three per cent of its budget on management. In the NHS, that figure is 14 per cent, and the difference between these numbers costs us £10 billion annually.
Now extend this cost comparison across the public services and you begin to see how an arrogant, pampered state management class is bleeding Britain into bankruptcy.