Merryn's Blog

Darling ignores Britain's biggest problem - debt

Alistair Darling's Pre-Budget Report lack any kind of detail on the number one question: how on earth this country's going to stop itself drowning in debt.

If you didn't catch the Pre-Budget Report 'live', take it from me - you didn't miss much.

It was pretty dull stuff a "damp squib", says Malcolm Cuthbert at Killik & Co. With a general election looming next year, that's no great surprise. But the big problem facing investors in UK Plc remains. That's the total lack of detail on thenumber onequestion how on earth this country's going to stop itself drowning in debt.

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The Chancellor has upped his public borrowing forecast for this year from £175bn to £178bn. And he's 'cut' his guess for 2013/14 from £97bn to, wait for it, £96bn. You cannot be serious, Alistair. Having forecast a current year shortfall of 'just' £118bn in the 2008 PBR, adding or subtracting a billion or two won't fool anyone.

The sheer scale of Britain's state borrowing is truly scary a "dreadful mess", says Andrew Smith of KPMG. As James Kirkup points out in the Telegraph, the PBR admits that by 2014/15, the UK's national debt will have climbed to £1,473bn. That equals almost 80% of GDP. And that's assuming that you believe the government's fairly racy growth forecasts of between 1-1.5% next year and 3.5% in 2011-12.

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So Britain is still heading for its highest-ever peacetime national debt, while the economy is more vulnerable than for many years. Some say the UK's national debt/GDP ratio has been a lot higher like after the Napoleonic Wars and we still pulled through. But that's not a valid comparison. After 1815, Britain pretty well ruled the world for a century. Our real GDP was almost certainly much higher than the 'official' figures suggest. There's little chance of that happening now.

And whatever was or wasn't - said yesterday, "there's no magic wand", says Smith. "The bottom line is that higher taxes and NICs, reduced public service provision and the likely imposition of user-fees for previously "free" services add up to a cut in the standard of living for pretty much everyone. Welcome to the new Age of Austerity".

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