TOUGH DECISION: British Prime Minister Gordon Brown leaves 10 Downing Street in London on October 14. In early October, Brown declared that his government was planning to sell off state assets for about $18 billion (XINHUA/AFP)

COURTESY OF KERRY BROWN

British Prime Minister Gordon Brown's declaration in early October that his government was planning to sell off state assets for about $18 billion was met with surprise and criticism in the UK. At the heart of the move was, however, a very real problem. That is the enormous amounts of public debt that the UK now has. In the 1990s and early 2000s, when the British and global economies were going strong, the UK's ratio of debt to government spending was 40 percent.

It has now risen to over 50 percent, and is likely to peak at about 60 to 65 percent. The government has had to borrow massively in order to bail out banks and restart the economy. This will mean that there is going to be a massive squeeze on public finances in the coming years, which is part of the reason why state assets will need to be sold off. Even so, their sale will only cover a tiny fraction of what will be necessary in order to rebalance the books, as the current government states it intends to do, if it stays in power, by 2018.

When Gordon Brown was the UK chancellor of the exchequer, effectively Britain's minister for finance, from 1997 to 2007, he was famous for being cautious on economic policy. He was called "Prudence" because of his carefulness. He did pass policies that tried to address the inequalities in the UK that had become more prominent after 18 years of Conservative rule, where laissez-faire capitalism had been embraced, and a massive process of privatization had occurred. In the 1970s, Britain's public utilities, airports, airlines and energy companies were state-owned. In the 1980s, under Margaret Thatcher, these services began to be transferred to private ownership, some of them listed, and some of them simply sold into the private sector.

By the 1990s, the time that Labor came to power, the UK had one of the most privatized economies in the world. Tony Blair, before he became prime minister in 1997, famously said that he would not reverse this process, and that his left wing government would continue to support privatization. Even air traffic control was discussed.

By 2009, therefore, the state had very few assets. It sees its expertise and competence as being public governance, not the running of companies. It was extremely ironic that it was forced, because of the gravity of the economic crisis in the banking sector in the UK in 2008, to nationalize some of the British banks.

The fact remains, though, that the UK's public finances have been torn apart by the effects of the crisis from 2007 to 2008. One cause of this is the billions of pounds that the British Government had to put into the financial services sector in order to revitalize it. On one dark day in September 2008, the UK financial system came hours away from collapse.

It is now widely known that had the government not put forward massive amounts of security and funding from the taxpayer for the main banks, particularly the Royal Bank of Scotland, then the UK banking system would simply have ceased to function. The main banks were only a matter of hours away from stopping cash machines from issuing money. The impact of this on public trust in the stability of the banking system would have been devastating. In that sense, what the British Government did was bold and effective.

But the aftermath has seen soaring levels of public debt, with the government now having to service huge interest payments. It nearly reached $3 million by the summer of 2009, though it has slowed down a little into this autumn. This comes at the same time as unemployment is creeping up in the UK.

But the social security costs for supporting these people who are at the moment not economically productive are a huge commitment. There are also issues about the general social security budget with pension costs and other commitments rising. This is, incidentally, far and away the largest burden on public spending in the UK—coming in twice as large as support for Britain's National Health Service.

With fewer people working, and people working for less money, tax receipts also fell. One of the main arguments by the Labor government for the city of London as a financial center was simply that, while it did lead to great levels of inequality, the hugely wealthy and well rewarded who worked in what is known as the "square mile" financial services areas contributed huge amounts to UK tax revenues, and also created 15 percent of the UK's gross domestic product growth.

This was despite the fact that many wealthy bankers used elaborate tax evasion schemes—all perfectly legal—in order to minimize their tax burden. Now, despite the return of many of the banks to profitability, these earnings have reduced, along with the taxes paid on them. Corporate taxes have also plummeted, with many companies struggling to make any profit at all.