I am grateful to the excellent BreakingViews financial news website (subscription or trial required) for alerting me to a new report by the Institute for Fiscal Studies on the scale of the UK's fiscal problems. It makes for sobering reading. Some highlights:
- The UK's deficit to GDP ratio is 11%, half again higher than the 7% that caused Callaghan to go to the IMF.
- The debt to GDP ratio is 42%. The IFS projects that at current trends it will reach 90% by the 2050s - and stay there.
- To balance expenses and revenues by 2015, HMG will need to find another 39 billion Pounds from somewhere. Interest expenses alone will be 1.5% of GDP.
- With no further spending cuts, that will require an additional 1,250 Pounds of annual taxation per family.
- No further tax rise will require spending cuts of over 1% per annum.
- The implications of a 90% debt to GDP ratio sugget that any fiscal stimulus package will "pale into insignificance relative to the underlying weakening of the public finances.
BreakingViews' Edward Hadas suggests that printing money may prove more attractive to HMG than accepting any of these unattractive options. Of course, that will risk uncontrolled inflation. In any event, I hope the Treasury team is reading this analysis alongside today's findings from the CHome party members' poll.
