One of the TPA's major projects over the next few weeks is to present the British public with a big visual reminder of the national debt. Next week, we will be launching a huge, lorry-mounted Debt Clock (the website will be developing quite quickly over the next few days as the clock starts its tour) which will tour the country urging people to "wake up" to the national debt. Using new evidence that emerged yesterday evening and earlier research it is possible to get a better idea of just how big a challenge the country is facing.
This year, the IMF expects that we will run the second biggest budget deficit in the developed world after Ireland. As I wrote yesterday for the TPA site, we are going to see more and more of our money go to pay debt interest and that amount could explode if yields rise. Mike Denham explains the issue very clearly in a video from our post-Budget briefing.
Looking a little further out - to 2020 - all of the parties are currently committed to a fiscal adjustment worth tens of billions in cumulative spending cuts or tax rises. Their policies also require big investment in other areas like meeting climate change targets which will push up bills and put further pressure on family budgets. Add it all up and you get to a combined fiscal crunch of £573 billion, as I set out in our new book and an accompanying TPA research note.
Look even further out to the horizon - to 2040 - and a new report for the Bank for International Settlements suggests that the picture gets even grimmer. Our preparation for an ageing population, which will put new pressure on the public finances, is dismal. They project that without action to change current policies we are heading for debt of 550% of GDP by 2040. Even with the kind of fiscal adjustment the politicians are currently planning we're talking about debt rising towards 400% of GDP, and we haven't had a credible plan for how that will be achieved yet. I've set out more detail on the BIS report in another blog on the TPA site but it gets even worse when you look at debt interest. They expect that by 2040 we'll be paying more than any other major developed economy in debt interest at 27% of GDP. If my quick calculation is right, that is equivalent to around £15,000 per family, per year now.
Getting a grip on the public finances is going to be a huge challenge. There is every reason to think it will be a pressing concern for a generation. In the new book How to Cut Public Spending (and Still Win an Election) we've put together our plan to get a handle on the issue, along with chapters from expert authors about how they think we can achieve a needed fiscal consolidation. In the next few weeks and then over the next Parliament, the TPA will be working hard to ensure that politicians take the necessary action and get deficits and public spending under control.
