Some three weeks ago Gordon Brown claimed that increased borrowing in the short-term was the most “responsible” way of helping the economy. At the time I almost choked as he had single-handedly wrecked the rapidly improving public finances, inherited from his Tory predecessors. But the borrowing figures in today’s Pre-Budget Report took the biscuit.
The borrowing projections the Chancellor read out in his speech in the House were simply eye-watering. Not merely will we see £78bn public borrowing this year, £118bn next year and £105bn the following year but borrowing is expected to continue well into the middle of the next decade with no sign of the public finances returning into the black. (Technically the current deficit, excluding investment spending, is expected to be in balance by 2015/16!) This is the road to fiscal insolvency. As it is the Government is expecting to have to sell at least £300bn of gilts over the next three years – many to overseas investors. But if overseas investors feel that British public debt is a bottomless pit there could well be an “investor strike” and the Government may have to resort, as a last resort, to the IMF to be bailed out. This humiliation occurred in 1976 and one hopes that there are some sage people in the Treasury who are aware of that humiliation. I for one remember it well as I was working in the Treasury on the public sector borrowing figures the following year!
Even if the Government does manage to fund this borrowing by selling gilts, the interest payments will have to be serviced. And, of course, such interest payments will be added to public sector debt which, even on the today’s Treasury projections, will soar to 57% by 2013/14 compared with 36% last year.
Tomorrow’s taxpayers, one way or another, will be picking a nasty bill from our current Government. Granted there were some taxes announced in today’s Pre-Budget Report. They were concentrated on an increase in the tax rate to 45% for those earning £150,000 or more (which may bring in around £1bn in a full year), increases in National Insurance Contributions and higher duties on alcohol, tobacco and petrol. But these are modest affairs in comparison with what I fear we have in store. The dropping of the 40% top income tax rate is totemic. If Labour is returned to power expect this rate to both increase significantly (50%, 60%?) and apply to people on relatively modest “middle class” incomes.
Taxes will surely go up much more than the Chancellor hinted today – unless a necessary scalpel is taken to our wasteful public sector. Does he really think he’s kidding us?
