The Treasury is to be ‘inspected’, well audited to discover how accurate its forecasts are. Now, this may be partly political, as the new coalition tries to distance itself from its predecessors but if the forecasts for future growth are incorrect then the size of the structural deficit will widen. Estimates suggest that for each 1.00% off that 3.25% estimate the deficit grows by £12 billion, so in the life of a government they could be looking to recoup another £50 to £60 billion pounds!
Current forecasts suggest that the UK government was expected to borrow the equivalent of 12% of GDP this year. Already the in-coming UK government have announced cuts in their salaries and more substantial cuts are high on its agenda to tackle a record budget deficit, marking the end of "spend-to-mend" policies advocated by former Prime Minister Gordon Brown in response to global downturn.
So, just what can done?
These are IFS agreed results of just some of the possible options open to the in-coming government. As you will note only a few really start to address the £60 billion ‘hole’ in the public finances. A whole, which already stated could grow by £12 billion a year if the current national income growth forecasts are 1% wrong.
Current UK Budget Deficit £ 167 billions
£ Billions raised
TAX Tax Transactions on the stock market at 0.05% 100
BENEFITS Freeze all benefits and tax credits for all of Parliament 24.6
VAT Apply standard VAT rate to zero-rated and
reduced-rated goods (like food and kid's clothes) 24.3
INCOME TAX Increase basic rate of income tax by 4p 16.2
POLICY Land and assets "fire sale" 16
VAT Increase standard VAT rate to 21% 15.75
NATIONAL INSURANCE Reduce personal allowance and employee
NI threshold to level of employer NI threshold and freeze for 5 years 15.3
INCOME TAX Increase basic and higher rates of income tax by 3p 15
ENVIRONMENT Introduce a carbon tax of £21/tonne of CO2 13.4
VAT Increase standard VAT rate to 20% 13
BENEFITS Means-test Disability Living Allowance 11.7
GOVERNMENT Cut regulation costs (over 5 years) 10
PENSIONS Increase state pension age by a year 10
NHS NHS cuts & savings 10
INCOME TAX Increase higher rate of income tax to 50p 9.5
TRIDENT Not renewing Trident (over 4 years) 9
PENSIONS Abolish exemption of employer pension contributions from NI 8.3
NATIONAL INSURANCE Increase self-employed NI rates to match those for employees 6.8
BENEFITS Lower the threshold of income at which the family element of the child tax credit begins
to taper. Family element = for all, regardless of no. of kids. PLUS taper child benefits. 6.5
NHS Scrapping NHS IT system 6
One thing looks certain to me and that is that tax will have increase. VAT looks to be the easiest but others also seem to be ‘vulnerable’ to a government who has stated that it wants this debt down and quickly.
The IFS figures showing just how much each of the parties would have cut before two of them were elected. There is NOT that much in it and again this points to tax increases. Watch this space.
Some extra teaching resources
EU data
http://voxeu.org/index.php?q=node/5008
Good numbers of PIIGS problems.
http://www.ft.com/world/europe/brussels/economy
The FT’s excellent coverage of economics and economies
http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/themes
EU’s own data
http://news.bbc.co.uk/1/hi/business/10109275.stm
Details on Spain’s new budget cuts
http://news.bbc.co.uk/1/hi/world/europe/8678073.stm
News on Estonia’s decision to join Euro
http://news.bbc.co.uk/1/hi/business/10110358.stm
Growth numbers for Euro Zone
http://news.bbc.co.uk/1/hi/world/europe/7941857.stm