Britain should prepare for a massive dose of inflation unless the Government imposes real public spending cuts, one of the country’s leading venture capitalists told chartered accountants in Birmingham.
Jon Moulton, the man who famously failed to buy MG Rover when BMW sold the company to the “Phoenix Four”, said that, despite all the rhetoric, the Government was planning to increase spending year after year.
Mr Moulton, who was this week listed as the 454th richest man in the country with a personal fortune valued at £154 million, said Ireland and Greece would both eventually default on their debts.
And he said Britain would be better off outside the European Union.
Mr Moulton, who was born in Stoke-on-Trent and began his career working for Coopers & Lybrand in Birmingham and the Black Country, was in the city to receive a Lifetime Achievement award from the Institute of Chartered Accountants in the West Midlands.
The founder of private equity firm Better Capital built his reputation by taking over failing businesses and turning them around. He recently bought the UK arm of “Reader’s Digest” in a £13 million deal.
Though sometimes criticised for being outspoken, Mr Moulton is credited with having foreseen that excessive borrowing would lead to a banking collapse and recession.
He is now warning: “Inflation is going to be a significant part of sorting out the national balance sheet but it isn’t easy. High inflation will come but it won’t improve things. It will make things worse and it’s already inevitable.”
Mr Moulton said that1968, when Bruce Forsyth was leading the “I’m Backing Britain” campaign, the Government spent £1.7 billion on the NHS and £2.7 billion on defence.
Today the NHS absorbed over 60 times as much, at £119.8 billion, while defence had risen to £43.9 billion. Inflation has risen 13.5 times over the same period.
Mr Moulton went on: “Most people think we are having cuts but total spending is going up every year.” But Government had no plans to impose actual cuts in the level of public spending.
Instead the Government assumed the economy would grow while inflation would also erode its level of debt, now standing at 50 per cent of national output (GDP).
The Government’s own figures show public spending will rise year by year between 2010-11 and 2015-16 from £694.4 billion to £763.8 billion.
“We need real cuts. That means taking things out of the state. It would require courage and determination. We would have a better economy in a few years’ time,” he said.
Mr Moulton said of Ireland’s debts: “If you don’t think they are going to default, you are deluded.” Greece – which, he said, first defaulted on sovereign debt in 400 BC – was also set to default.
The only EU country with a surplus was Estonia, he said, and that was because in 2009 the country had imposed “violent cuts”. Debts across the EU were running at six per cent of GDP – “these are unsustainable, the debt doesn’t go away.”
Mr Moulton questioned the morality of economic policy which rescued the indebted and “hammered” savers. “It’s an immoral transfer of values. We are wiping out those who should be rewarded,” he said.
“You are living better at the expense of those who follow you. That debt isn’t going to go away. We are living better today in exchange for our children living worse. It is very immoral and the only thing we can do is inflate or default.
“Nobody is willing to let these problems come home. Eventually there will be defaults and when that happens sovereign debts will cease to be attractive assets, interest rates will rise very steeply and sharply without any control of the Bank of England. Sooner or later comes much worse pain.
“The morality of what we are doing is something we should talk about more and do more about.”
Mr Moulton said the economy was surviving thanks to low interest rates but there would be a day of reckoning even if the Bank of England printed more money, increased the supply and kept down the price of money.
Low interest rates were preventing economic renewal. They were keeping alive the 10 per cent to 12 per cent of companies which should be allowed to go to the wall. “We need to get people out of hopeless businesses and into good ones,” he said.
“We have a stock of companies building up that need their assets redeploying into new activities or run better.”
Mr Moulton said the economy should take the pain now even though it could add four per cent to unemployment and cut two to three per cent off GDP because in five years’ time there would be more people in work and a higher growth rate.
He said some easy steps could be taken to reduce the regulatory burden. Employment law was now so biased in favour of the worker it prevented companies from offering jobs to the unemployed.
Britain was now ranked 89th in the world for red tape, alongside Nigeria.
This country should also seek a new relationship with the EU along the same lines as Switzerland, which was in a free-trade zone with the rest of Europe but free of Brussels’ laws and regulations.
“We should go to a Swiss solution. Free trade is all we need. It would enable the economy to grow better.”
Mr Moulton said the banks were still not lending easily enough. “We need a more efficient, cheaper and more attractive banking environment,” he said.
He added that the Government should abandon plans to send half of school-leavers to university and encourage more young people into technological and job-related training.
On receiving his award, Mr Moulton said: “I have been a chartered accountant nearly as long as I have been married. I have always enjoyed being a chartered accountant and I’m a great fan of the Institute and very much hope it can get back all of its power and influence.”
He called on the ICAEW to fight for “sensible accounting standards” in the face of international accounting standards “and similar nonsense shoved down our throats”.
He also commented that Shadow Chancellor Ed Balls was “a maniac who, if allowed access to the economy, will result in another serious recession”.