The Government's policies appear to be satisfying the bond markets - evidenced by it being able to borrow at low rates of interest. By pledging to eliminate the structural deficit by the end of the Parliament, they have convinced the markets they are getting debt accumulation under control and have provided a timetable by which voters will be able to judge their record. Whether the public spending restraint goes far enough is open to debate: it looks fairly modest (real terms spending just 3.7% less than 2009/10 in 2014/15) and only goes some way to unwinding the profligacy of the last government.
A misconception, however, is that this government is reducing the national debt – a mistake that tomorrow’s Rally Against Debt will try to expose. In fact, the government will continue to add to it until the deficit is eliminated, leading to much higher levels of debt repayments by the end of the Parliament. Indeed, by 2014-15 debt repayments will be £62.4 billion - larger than even the education budget at £57.3 billion.
Are we happy with this? If not, what could we do differently? Jon Moulton argued that the best long-term economic course would entail cutting deeper - taking the short term pain for the long term gain. Whether the current population would accept this remains to be seen. A more realistic aim might be to ensure that post-2015 we attempt to run a few budget surpluses, though politicians who state this as policy may well find themselves without a job.
Or we could do nothing, thinking of the debt burden as a necessary evil and just continue to kick the debt can down the line.
One thing is certain, however. Every pound of the national debt will in time have to be serviced, inflated away or defaulted on. And there is much evidence to suggest the real national debt is much worse than the official statistics suggest (CPS calculations imply £3.625 trillion). Some people will feel the pain. The question then, is who? Us? Our children? Our grandchildren? It is this debate that I hope will be stimulated by tomorrow's Rally.