Julian Knight: Politicians in denial, and we'll all pay the price

Greece’s ‘lies’ have led to it being shorted by hedge funds, while Ed Balls, is among those peddling myths in the UK

People in serious debt often live in a state of denial. A close friend of mine who worked for Citizens Advice talks of people turning up hours before repossession with suitcases full of final reminders, which they have hidden from their families. Often my friend's first job was to get them to own up and tell their loved ones they were about to be thrown on to the street. It may seem crazy that people can live in such a state of denial – but, remember, shame and fear are two of the strongest human emotions.

Fear, of course (although not shame, we're talking politicians), is at the core of last week's pre-Budget report. Fear of what voters, unions and opponents would do if the Government 'fessed-up and told the truth about how we can possibly get out of this fiscal mess. Treasury officials have already said they wanted to do more and are pointing the finger at Brown and his mate Children's Secretary Ed Balls, right, for persisting with the myth that borrowing £173bn next year is sustainable.



A potentially lethal game – for government finances and for our whole economy – is being played. Everyone knows a public-finances crunch will follow the election and we are banking on the bond markets to give the Government breathing space. We are entering the most dangerous period for public finances, and therefore your personal finances, in living memory.



The markets are getting a taste for blood. Greece broke all trust by basically lying about its finances and is being shorted by the hedge funds. Ireland is being brave and facing up to its deficit, which may well save its economy, if not the government. But both are in the euro's embrace, which although not a guarantee of survival, certainly adds a layer of protection.



There is no such protection for the UK, we are relying on a good public finances record – until 2002 – and on being too big to have our marker called in. It's going to be a close-run thing when it comes to downgrading government debt, particularly if we have another "denial" Budget in the spring. Ministers are doing the equivalent of locking final reminders in a case.



But as a private individual what can you do? Gold is only a good hedge for global economic moves, not for when the UK alone is going down the tubes. Residential property in the short term (or long term if you're outside the South-east) is vulnerable because a UK double-dip recession could kill the market stone dead. One of the few places where returns could be had, or at least losses minimised, is the FTSE. The UK stock market is a global market – profits from firms listed come mostly from overseas – and could prove a good hedge against a downgrading of UK debt, a run on sterling, or worse.



The only bright spot of the pre-Budget report was the recognition that public-sector pensions need reform. It was a necessary rowing back from Home Secretary Alan Johnson's craven agreement with the unions that pensions will remain untouched. However, if the Government thinks that it can just cap the pensions of its highest-paid public servants and get the majority of staff to pay an extra couple of per cent each month then it is in denial, again.



We cannot afford to write a blank cheque for public final-salary schemes. There was an argument for them when public sector pay was worse than in the private sector, and interest rates were higher, so investment returns used to pay for pension promises were higher. But now not only is the UK issuing tons of new debt, it's also trying to pay next to nothing for it and compelling the pension funds to buy this cruddy paper. What has to happen now – and this would show the markets that we mean business – is to introduce career-average plans.



Pretending the burden can fall on the best-paid civil servants is as ridiculous as suggesting that those in the 40 per cent tax bracket can pay for the nightmarish public-sector deficit.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
Arts and Entertainment
Beast would strip to his underpants and take to the stage with a slogan scrawled on his bare chest whilst fans shouted “you fat bastard” at him
musicIndie music promoter was was a feature at Carter gigs
News
news
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
PROMOTED VIDEO
News
Performers dressed as Tunnocks chocolate teacakes, a renowned Scottish confectionary, perform during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
news
Life and Style
Popular plonk: Lambrusco is selling strong
Food + drinkNaff Seventies corner-shop staple is this year's Aperol Spritz
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Shake down: Michelle and Barack Obama bump knuckles before an election night rally in Minnesota in 2008, the 'Washington Post' called it 'the fist bump heard round the world'
newsThe pound, a.k.a. the dap, greatly improves hygiene
Arts and Entertainment
La Roux
music
Arts and Entertainment
Graham Fellows as John Shuttleworth
comedySean O'Grady joins Graham Fellows down his local Spar
News
people
News
Ross Burden pictured in 2002
people
News
Elisabeth Murdoch: The 44-year-old said she felt a responsibility to 'stand up and be counted’'
media... says Rupert Murdoch
Arts and Entertainment
tv
Extras
indybest
Sport
Arsenal signing Calum Chambers
sportGunners complete £16m transfer of Southampton youngster
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

    £350 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

    Java Developer - Banking - London - Up to £560/day

    £500 - £560 per day: Orgtel: Java Developer FX - Banking - London - Up to £560...

    HR Business Analyst, Bristol, £350-400pd

    £350 - £400 per day + competitive: Orgtel: My client, a leading bank, is curre...

    Account Manager - (Product & Account Management, Marketing)

    £26000 - £30000 per annum + Benefits: Ashdown Group: Account Manager - (Produc...

    Day In a Page

    The children were playing in the street with toy guns. The air strikes were tragically real

    The air strikes were tragically real

    The children were playing in the street with toy guns
    Boozy, ignorant, intolerant, but very polite – The British, as others see us

    Britain as others see us

    Boozy, ignorant, intolerant, but very polite
    Countries that don’t survey their tigers risk losing them altogether

    Countries that don’t survey their tigers risk losing them

    Jonathon Porritt sounds the alarm
    How did our legends really begin?

    How did our legends really begin?

    Applying the theory of evolution to the world's many mythologies
    Watch out: Lambrusco is back on the menu

    Lambrusco is back on the menu

    Naff Seventies corner-shop staple is this year's Aperol Spritz
    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on