When I moved back to the UK two years ago after living abroad for a while, nobody could accuse me of not knowing what I was getting into. For quite some time pundits in the collapsosphere have been calling out the UK as one of the riskiest countries in which to live, right up there with Japan. Not only do we have a nation that is heavily over-populated with respect to its resource base, but one which hosts one of the world's major world financial viper pits. It's a nation where Arab playboys drive gold-plated Ferraris around the gentrified streets of London while snot-nosed urchins everywhere else go to school without eating breakfast. It's a nation where an unelected old lady in a £300 million hat recently sat on a throne and managed to keep a straight face while announcing her government's plans to slash money for the poor. Basically it's a nation engaged in a war of attrition between those with wealth and those without.
But something in the air has changed since the recent election in which David Cameron's Tories won a majority in the House of Commons. Within days - unshackled for their former collation with the moderating hand of the Liberal Democrats - there were announcements of plans to walk away from human rights treaties, to impose a 'snoopers charter' of surveillance, to further slash welfare spending, push through the TTIP 'trade' agreement, ramp up fracking, bring back fox hunting with hounds. The Left have been howling in pain ever since.
Although all this was to be expected of the 'nasty party' the one thing that nobody seems to be talking about is how the nation itself will manage to survive as a modern state given the, ahem, challenges it faces. The three main immediate challenges, as I see it, come from the realms of finance, energy and politics. Failings in each one of them alone could prove disastrous, but it seems as if we will get to witness all three calamities occur simultaneously.
Let's take finance first.
I've been trying to get to the bottom of what the UK's debt/deficit position is. Mention 'the deficit' and most people emit a strangled howl of indignation. "Don't you know the deficit is a tissue of lies fabricated by the right wing who want to impose Dickensian conditions on the poor?" they ask. Granted, it doesn't seem fair to cut the benefits of society's most needy while simultaneously heaping more money up at the other end of the spectrum, but that wasn't the question. That's simply what failing states do - the more powerful grab what they can at the expense of the less powerful. It's all there in the history books. The next act usually involves pitchforks.
But this time is different, they argue. Money can now be created by magic, and all we need to do is do whatever it is that those clever folks at the Bank of England (or Bitcoin) do to create more of it using their computers. And, bingo, then we can simply spend it on 'making things great again'. The country can continue to produce 'services' again, everybody will have a decent standard of living once more and we will be back on track to that future of driverless cars, space missions and living to 150.
Money might not seem important if you think it isn't important, but that doesn't alter the fact that throughout modern history there has not been a time when money is not considered important. Especially to creditors, of which the UK has a lot. So, in a kind of back of the envelope way, I decided to try and get a grip on how much debt the government owes. It seems that the total debt is about £1.5 trillion, and the annual deficit is running at about £107 billion - or over £2 billion a week. At that rate the proposed 'austerity' of £12 billion will thus be used up in six weeks. This doesn't matter, according to the economists in the mainstream media, because Britain's economy is doing so well that the annual deficit will be wiped out by rising tax receipts in a couple of years.
Yet tax receipts from oil and gas have fallen by about 75% since 2008, and will probably drop to zero when North Sea oil and gas stops flowing completely in a couple of years' time (still no mention of this in the media...). And tax receipts are falling as a) more people are in lower-paid jobs and/or falsely counted as employed because they have been forced to declare themselves self-employed b) the larger companies have had their corporation taxes cut and can avoid paying tax entirely if they have savvy accountants.
VAT receipts are flat as most consumers have maxed out their credit cards and run out of spending power. The only way they can rise is if people take on EVEN MORE personal debt - which a lot have actually been doing (currently average personal debt is running at an all-time record of 172% of income, according to a PwC report). But personal debt needs to be repaid one day, and with falling real incomes and plenty of hidden stealth inflation (e.g. food items getting smaller, durable goods getting shoddier, hidden charges becoming more unavoidable etc.) that will become more difficult.
|Moneyweek's take on the debt situation|
Future projections of the debt/deficit all presuppose a 'healthy' and growing economy. This seems very unlikely IMO given that a financial 'accident' is likely to happen at any moment. And all the while the structural deficit grows larger as the population ages, annuities reach maturity and the bill for the NHS soars. In this context GDP figures don't really mean anything useful: the economy might be improving but it's not the economy that most people ordinarily live in. Plus, any downgrade of the economy by ratings agencies caused by - say - a fracture of the UK, or a severe credit event, will have a knock-on effect on the government's ability to borrow cheaply and we will simply end up paying the interest on the national credit card, while the capital debts piles up. The interest on this debt alone already costs us £55 billion a year and that's with interest rates at near zero.
All in all, it's difficult not to conclude that the UK is insolvent. But, in any case, perhaps that doesn't matter because this brings me onto the political aspect of the crisis: perhaps there soon won't even be a UK (after all, what do you call a bunch of small countries that are not united?). Since Scotland got royally shafted in their Independence referendum they replied by booting out practically every MP from a Westminster party and instead elected Scottish National Party members to speak up for them. The upshot of this is that David Cameron wants to press ahead with swingeing austerity measures (which, looking at the dire financial figures will actually have to be FAR worse than most people imagine) - but the Scots say they won't accept it north of the border. It's difficult to imagine all of us in England and Wales living in Third World conditions while the Scots keep handing out brown envelopes of cash to their citizens, and people accepting that as fair.
So, sooner or later, Scotland may well get independence, which means that others might want to follow suit. All of a sudden everyone seems to be talking about breaking up. UKIP and most Tories want us to break away from the EU, Scotland, as previously mentioned, will probably go for a messy divorce (and take a large chunk of GDP with them as they leave), London may want to declare itself a 'city state', northern England might want to join Scotland in getting away from the southerners - even Cornwall is starting to get a bit itchy.
Given that the UK's finances are one big Ponzi scheme (what does the country actually produce these days that has a physical presence?) any political rupture could bring down the house of cards. Parliament, in any case, is almost paralysed as the Tories actually only won by a slim majority and will have trouble passing any contentious legislation. Who knows, perhaps even faraway Greece could provide enough turmoil to shatter the status quo should its amputation from the EU cause death judders. There's a simmering tension and people are already angry enough ... what happens when they get even angrier?
Finally, we have the energy conundrum. I've been saying now for at least two years that my guess is that we will see some kind of restriction on the sale of oil and/or petrol in the UK in 2016. I still have 18 months left to see if my prediction will come true, but at the rate things are going it seems like it has a good chance of doing so. As previously noted, North Sea oil is facing a precipitous decline. That decline is accelerating in step with the lower oil price, as new projects are not begun and old ones are mothballed due to high costs. Hundreds of oil workers have been laid off in Aberdeen (and the Scots think they can avoid austerity by using their oil money ...).
Not to worry, old chap, says the media. Don't you know that we'll be getting LNG from America soon, and fracked gas from beneath our very own land?
That's the standard response, whenever energy shortages are mentioned, which is rarely. Of course, it's quite ludicrous that either of these schemes will ever happen in the real world. To unlock the British shale gas they would need to turn huge areas of the country into industrial wastelands - huge areas that currently have millions of people (many of them wealthy) living on them. This, in a country where planning and conservation laws are so tight it's a major achievement just to put up a sign lest it spoil the character of the area. And let's not forget that millions of people are implacably opposed to fracking - to the point where they would be willing to lay down their lives to halt the drillers. Heck, this must be the only country in the world to employ magical defence against frackers (it's working, so far).
Let's add ISIS into the mix. At the rate things are going in the Middle East, if things carry on as they are in Yemen and Saudi Arabia, there could be a major conflagration. It's not hard to imagine oil installations set on fire and the price of crude heading up to $200. This, ironically, is one way the fracking industry and the North Sea could avoid immediate bankruptcy. Not that anyone would be able to afford to fill up their cars any more ...
So where, exactly, will the UK get its energy from in the future? There are a lot of cars and trucks here. There are millions of shops and offices and ports and sports grounds and malls that all need lavish amounts of energy to keep functioning. It gets cold here in winter and old people are already dying from exposure inside their own homes - what will happen to them all as the inevitable energy crisis begins to bite?
So, as nice as it would be to get a bag of popcorn and watch this spectacle unfold from afar, I find myself up there on the stage. Still, not to worry, as we say ...