UK 'must cut spending or raise taxes,' say experts

Wookster

http://www.independent.co.uk/news/business/news/uk-must-cut-spending-or-raise-taxes-say-experts-1519074.html

The Government will have to raise taxes or cut spending by £20bn a year by 2015 to meet its own targets for restoring public finances, the Institute for Fiscal Studies said yesterday.

In its Green Budget, the think-tank's annual report of economic policy, it predicted Government income from taxes would be significantly lower than the Treasury's forecast, as the recession takes its toll on the finances of households and companies, leading to the £20bn shortfall.
"In current circumstances, the cost of doing nothing, should action be required, is larger than the cost of acting, only to find it was unnecessary and can subsequently be reversed," the report said. Even with the extra funds, public debt could take more than 20 years to get back to pre-credit crisis levels, it added.
Without painful fiscal tightening, the IFS said public net debt could rise to more than 60 per cent of GDP, way above the 40 per cent Gordon Brown set as a fiscal rule in 1997. Even if public finances evolve as the Government hopes, the fiscal squeeze will have to remain in place until the early 2030s, before debt as a proportion of income returns to below the 40 per cent target, it said.
Using the Treasury's own figures, the IFS estimates the credit crunch will cost the state the equivalent of 3.5 per cent of GDP, or about £50bn in today's money, in lost tax receipts and extra spending on social security.
The think-tank described a Government at risk of losing credibility with financial markets as it raises debt to levels not seen since the Second World War in an effort to cushion against the worsening crisis.

Apparently the experts are all wrong according to Sir Humphrey, Rochdale and Crash.

purch

UK 'must cut spending or raise taxes,' say experts

I'm guessing "Neither" :eek:

Sir_Humphrey

Wookster wrote: »

Apparently the experts are all wrong according to Sir Humphrey, Rochdale and Crash.

If you actually read the story properly, those taxes will rise once the current stimulus is over. This would be sensible, as Keynesianism requires the reining in of the fiscal position in the good times.
http://www.ifs.org.uk/publications/4418

IFS wrote:

1. The rate of VAT has been cut temporarily to 15%, with a return to 17.5% in place for the end of 2009. The government has predicted that this will increase consumer spending by about 0.5%. Much of the analysis of this tax cut has been critical of the policy and concluded that the government's estimates of the impact on spending are over-optimistic. The source of this criticism is a misunderstanding of the mechanism through which the tax cut will have an impact. In fact, we believe the government's estimates are overly-pessimistic.

So the IFS favour the recent VAT cut.
http://www.ifs.org.uk/budgets/gb2009/09chap2.pdf

IFS wrote:

The evolution of the public finances since 1997 mirrors the first 12 years of Conservative governments after 1979: three years of impressive fiscal consolidation, eight years of drift (masked by economic overconfidence), and then a big jump in borrowing thanks to recession and newly-discovered structural weaknesses.

The IFS think New Labour are just like Thatcher and Major.
Seems you may have left yourself a hostage to fortune there!

Rochdale_Pioneers

Wookster wrote: »

http://www.independent.co.uk/news/business/news/uk-must-cut-spending-or-raise-taxes-say-experts-1519074.html



Apparently the experts are all wrong according to Sir Humphrey, Rochdale and Crash.

The experts - if by that you mean the IFS - have just said in the report you have just linked to - that the cost of doing nothing would be greater than the cost of taking action.

Isn't that what we've been saying? Without a credit crunch it would have been madness to spend the cash we're doing now. But where we are we can't afford not to do so. Isn't that why governments across the world are doing so? Why are you right and everyone else wrong?

Sir_Humphrey

Rochdale_Pioneers wrote: »

The experts - if by that you mean the IFS - have just said in the report you have just linked to - that the cost of doing nothing would be greater than the cost of taking action.

Isn't that what we've been saying? Without a credit crunch it would have been madness to spend the cash we're doing now. But where we are we can't afford not to do so. Isn't that why governments across the world are doing so? Why are you right and everyone else wrong?

Selective and distorted quotations are the stock in trade of internet armchair pundits.

Generali

Sir_Humphrey wrote: »

If you actually read the story properly, those taxes will rise once the current stimulus is over. This would be sensible, as Keynesianism requires the reining in of the fiscal position in the good times.
http://www.ifs.org.uk/publications/4418

I was wondering at which point during the past 10.5 years did Mr Brown rein in Government spending or are we still waiting for the good times?

WTF?_2

They forget the 'third way' - Just print the money, innit.

Rochdale_Pioneers

Generali wrote: »

I was wondering at which point during the past 10.5 years did Mr Brown rein in Government spending or are we still waiting for the good times?

1997-2001. Brown stuck to restrained Tory spending limits which even Ken Clarke admitted he would have broken. In that period Brown paid off debt instead, dropping UK national debt from 49.8% in 1997 to 37.7% in 2001. Its only in Labour's second term that the spending spree began - before that there was mass complaints from the back benches that Labour was doing nothing. Remember Brown's infamous sub-£1 pension increase?

Even with the big increase in spending, debt had only risen to 44.2% by 2007.

Generali

Rochdale_Pioneers wrote: »

1997-2001. Brown stuck to restrained Tory spending limits which even Ken Clarke admitted he would have broken. In that period Brown paid off debt instead, dropping UK national debt from 49.8% in 1997 to 37.7% in 2001. Its only in Labour's second term that the spending spree began - before that there was mass complaints from the back benches that Labour was doing nothing. Remember Brown's infamous sub-£1 pension increase?

Even with the big increase in spending, debt had only risen to 44.2% by 2007.

How much of that was rising GDP and how much falling debt? I suspect debt remained broadly flat except for a period around 2000-2004-ish. GDP has risen rapidly but now appears to be heading backwards.

A back-of-envelop calculation seems to show that MEW was perhaps 6% of GDP seems to suggest GDP has a way to fall yet leaving Mr Brown with rather less flattering debt numbers.

Rochdale_Pioneers

Generali wrote: »

How much of that was rising GDP and how much falling debt? I suspect debt remained broadly flat except for a period around 2000-2004-ish. GDP has risen rapidly but now appears to be heading backwards.

Go ask the EU - its their numbers I quote. That being the case then the same argument goes pre-97 - the economy was in steady growth since 93 so the falling debt levels we saw under Clarke (from a peak over 51%) much under the same logic also have been down to rising GDP.

What we do know is that ONS shows both Chancellors spending Billions during the 90s to pay off debts. Unless you know better?

Sir_Humphrey

I think the headline of this thread is instructive. It says 'or'. The issue is not whether you do public spending, or cut taxes. The issue is the deficit.
When left-of-centre governments run up larger debts, it is a result of increasing public spending, but not raising taxes enough to match.
When right-of-centre governments run up larger debts, it is a result of cutting taxes but not cutting the spedning they like (eg the military) to match. Ronald Reagan and George W Bush made this mistake, because both were stupid enough a) take the Laffer curve seriously and b) not to understand it correctly.
EDIT In some circumstances, increasing the debt is a good idea (like now)