In today’s Autumn Statement there was some great news on jobs and fuel duty, but it’s surrounded by a surreal atmosphere. We must still beware the bond market.
Employment is at a high with 1.2 million private sector jobs created since early 2010. Youth unemployment is falling - we’re doing much better than our neighbours. Government is living beyond its means to the tune of £108 billion, down from £159 billion in 2009-10. Fuel duty has been frozen at merely eye-watering levels: those of us who campaigned for it will now have to defend the consequences. Billions will have to be found from somewhere else.
We’re told the Government still has an even chance of balancing the books within five years but it will take an extra year before the debt is falling. ITV’s polling tells us only 6 per cent of the public realise the national debt is going up. Almost half the public think the debt is already coming down and that’s no basis for meaningful democratic debate: we’re still addicted to cheap debt.
Government action means Britain is a comparatively safe haven in a risky world for bond investors. The Chancellor knows higher rates would be a disaster for the public finances and for indebted businesses and individuals but 'monetary activism' has been used to deliver low rates. The Treasury has collected the interest payments on the bonds bought by the Bank of England so we see today more clearly the depths to which Labour delivered us.
Worse still, if the Bank loses control of inflation, bursting the bond market bubble, the game will be up. The Treasury and Bank of England would face appalling choices: either interest rate rises and a brutal correction or more money creation in a self-defeating attempt to keep rates low.
There was some good news today but the real question is this: can the Government keep skating on thin bond market ice until the good times come again?
Steve Baker is the Conservative MP for Wycombe and Chair of the All-Party Parliamentary Group on Economics, Money and Banking.