Following on from Andrew Lilico's excellent post below, I can't help feeling that he PBR is almost certainly too optimistic on how much public spending will have to rise during the recession. In the last two downturns, public spending rose 5% of GDP (see the chart below). Yet the Government seems to think it will only have to rise 2% this time. This seems unlikely as the expectation is that this downturn will be every bit as bad as the 1980s and 1990s. The gap is some 3% of GDP.
Borrowing is so high, that there will almost certainly be no choice but to raise taxes. At 3% of GDP, this hidden extra tax bombshell can be expected to cost each household a further £2,000 a year for some three years. That's in addition to all the extra tax that will be required to pay down Labour's borrowing splurge.
And guess what? The stinker budget to do it will probably have to be delivered right after the next General Election. What a surprise!
