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Comprehensive Spending Review

Not yet. Government borrowing must, without doubt, be brought down and public sector debt reduced as a proportion of GDP; otherwise, future Governments might not be able to fight any future economic shocks of the kind that we are still recovering from. Labour had planned to halve the public sector annual deficit by 2013-14, which is in accord with the June 2010 G20 Toronto declaration. The Office for Budget Responsibility has confirmed that, under Labour’s plans, borrowing would have been more than halved by 2013. The coalition, however, has adopted a far riskier strategy, as seen in the comprehensive spending review. It plans to cut the UK fiscal deficit by much more than was required by the Toronto accord—much more. The UK fiscal tightening plan for next year, 2011, is twice as fast as that planned by the USA and four times as fast as Germany and Japan. Why the rush? IMF figures show that the UK’s gross financing needs as a proportion of GDP this year and next year are below those of Japan, the United States of America, France, Canada and many other comparable countries. The alarm bells are not ringing, so why risk derailing the recovery by squeezing the economy at the very moment it is beginning to grow again? The IMF figures also show that, in the next three years, the UK plans to make about two thirds of the fiscal adjustment that is required in the coming 10 years for the UK to be on target to reduce the public sector debt to 60% of GDP by 2030. Again, why the rush? The coalition’s plans could seriously undercut growth. The IMF estimates that the cost of front-loading the squeeze on the UK fiscal deficit is a 0.3% reduction in our growth rate next year. That cut in growth rate might be seen by the coalition as valuable insurance against the risk of a costly loss of confidence in Britain’s public finances, but in the absence of any sign of such weakening confidence, it all smacks of giving in to one’s worst imaginings.