The Bank of England’s inflation report was out yesterday. It says that there’s a good chance that inflation will hit 5% before the end of the year. The Consumer Price Index is currently sitting at 4%. Keep those numbers in your head.

Now look at this one. The government is currently paying around 3.75% interest on its debt. That’s very low. This is, of course, no surprise. As the rest of the world goes to the dogs, investors looking for a safe bet see British bonds as a steady place to store their money. Funds looking to play it safe want to leave their cash with the UK government because there is a very low risk we will default.

Now look at these two numbers together. Our interest payments are lower than inflation.

When debt interest is lower than inflation, the lender is losing money – and the borrower is in effect making it. Imagine if you lent me £10 in 1950, with no interest. I pay you back with £10 today. Then, in real terms, you have lost money, and I have gained it. Because you can buy less today with £10 than you could in 1950. The money I pay back to you is worth less than the stuff I got with it 60 years ago.

If we, like the Tories, were to use household analogies to talk about British Government debt, then we would say this: inflation is higher than the interest being paid. The Government is therefore making a profit on its debt. And this is, as I understand it, true in a sense.

Of course, Tory household analogies are never fully honest. While it may be true, it is much more complex than this. Because we have to ask this – what is this debt shrinking in comparison to? Ultimately, it isn’t the size of our debt that matters, it is the size of our external debt in comparison to the size of our economy.

Let’s unravel that a little. First, let’s look at the government’s debt when compared with the size of our economy, measured in GDP. It’s lower than it’s been for 200 out of the last 250 years. That’s why the Tories don’t like to use that figure. Because any realistic measure of our debt shows that it’s nothing to worry about.

Of course, even that figure isn’t relevant. Because this isn’t external debt. Almost all (70%-80%) of it is owed to people within the UK – our pension funds, and the like. Saying Britain is in debt would be like saying a household is in debt because a mother has lent her son a tenner – the household isn’t in debt overall because while the son is down £10, the mother is in credit by the same abount – it all evens out.

Essentially the British private sector has wanted somewhere safe to store their money until the economic storms subside. And the government has provided a safehaven – a place to store what Keynes called this “wealth as such”.

No. Anyone used to campaigning on developing world debt knows that what matters is external debt – the debt we, Britain, owe to other countries – our national balance sheet. Have you ever heard the Tories talk about that? No. Because there is, in Britain, nothing to worry about. The amount of money owed to the rest of the world is tiny.

And so the Tories don’t talk about our debt to GDP. Because that shows that we don’t have a problem. And they don’t talk about net foreign debt. Because that too shows there is no need to cut.

No. They talk about the debt left by Labour, and the cost of interest payments on this debt. Well, according to the latest figures, we are now making an effective profit on this debt.

And so the final argument that remains is the deficit – the amount that the debt grows by each year (or, put another way, the amount that the private sector wishes to deposit in government bonds each year). Well, after the biggest financial collapse in a century, and at a time when we are making a profit on our debt, what’s the problem with borrowing a little extra to keep the economy afloat? After all, looking at the final set of figures out yesterday – where growth projections were revised down – it’s not like the government’s cuts are helping close a deficit caused by unemloyment.