Uncertain times as the IFS delivers its Green Budget
Peter Hoskin 12:16pmI'm embedded at the IFS/Morgan Stanley Green Budget event - at which the two organisations present their own prognoses for the UK economy and public finances - and my head's swimming with numbers, forecasts and graphs. Two things are standing out, though: just how much uncertainty there is about where we're headed, and how restricted future governments are going to be because of Brown's stewardship of the public finances.
First, the uncertainty. As Morgan Stanley's David Miles put it, there is "an unusally large amount of uncertainty about the UK economy" right now. Even the experts just don't know what's coming next, and they're having to come up with numerous "pessimistic", "optimistic" and "central" forecasts to account for this. It's striking that even the central forecasts are generally more pessimistic than the Treasury's forecasts - although, to be honest, not by all that much - meaning that tax receipts will most likely be lower, borrowing higher, and the recovery slower than HMT expects.
Of course, all this feeds into the fiscal mess that the next government will inherit. Even on the Treasury's forecasts for the economy - and even with an extended period of fiscal tightening (i.e. tax rises and/or spending cuts) - the IFS reckon that public sector net debt will be around 50 percent of GDP in 2013-14*, and will go only below 40% in 2032-33. But if you go off a more pessimistic forecast for the economy, then the debt-to-GDP ratio may be 90 percent in 2014 - something that the brains here call an "unsustainable" position, and one that would require "huge" tax hikes or spending cuts. Cameron 'n' Osborne must be looking on in fear.
Anyway, I'm just grabbing a coffee and some biscuits, and then it's back to hear a few more presentations. I'll fire off another dispatch if there's anything else that grabs me.
*N.B. This doesn't include Brown's off balance sheet ruses - the unofficial situation will be considerably worse.
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Robert Simpson
January 28th, 2009 1:22pm Report this commentThe more we learn about the future state of the public finances, the more terrifying it becomes. I don't think the long-term implications of the crisis are appreciated by more people yet (though in fairness, as Peter's article says, it's very difficult to assess what exactly is going to happen).
I think one of the trickiest jobs Cameron has is to get across how bad things are, yet avoid headlines like "Tories promise massive tax rises". It's probably politically wisest for him to concentrate on cutting spending rather than putting up taxes. Public opinion seems to have shifted against such high spending, and a 'government belt-tightening' message should be an easier sell at the moment.
All things considered, I think I'm going to be cursing Brown's profligacy and irresponsibility for a very long time to come.
oldtimer
January 28th, 2009 2:58pm Report this commentThe IFS has, obligingly, posted copies of the presentations on their website here:
http://www.ifs.org.uk/
They are in easy to read, bullet point format.
Apart from the enormous uncertainty in the forecasts, the remarks which stuck out for me were:
1 Debt unlikely to return to pre-crisis levels until 2030s (I will be long since dead by then!)
2 The IFS think that £20 bn higher taxes and/or lower spending will be needed to achieve the improvement predicted in the PBR in the next Parliament.
3 Public sector net debt will reach £84bn in 2008-9 and £125bn in 2009-10.
4 Needed reforms include the reinclusion of housing costs in measures of inflation, flexible capital adequacy ratios, removal of marginal tax rate stupidities.
Two big unknowns are the impact of the recent rapid Sterling depreciation and whether the savings rate will show a sharp uptick as more people take fright for their future.
I expect VAT rates will be raised in future budgets. I think Cameron/Osborne are right to keep their powder dry on future measures.
TrevorsDen
January 28th, 2009 4:50pm Report this commentThe benign elephant in the room when it comes to cutting back on future borrowing is the scope for future cutbacks in govt bureaucracy and hence spending - the need to change the way we are governed to a less expensive more cost effective model. Do more with less.
I mean
Can anyone tell us what good NICE is for all the money it costs. It costs nothing for a civil servant or politician to simply make a decision.
DIZZY points out the huge air miles bill run up by the Home Office alone.
Less govt - lower taxes - encourage investment and entrepreneurs from home and abroad. Encourage and make room for real growth to pay off our debt.
Verity
January 29th, 2009 1:10am Report this commentTrevorsDen - yes, but what you propose isn't socialist, but common purpose One Worlder government by the selected few.
This fight has been going on for at least 25 years.
World government.
Britain has submitted. It wouldn't have under a Conservative government. Our people didn't want it. But the Gramscis wanted it. We're gone.
What has not submitted are the vast continents of Latin America and Asia.
So, commercially, it will be a fight between clapped out Europe and a weakened United States (Canada has already submitted) and energetic, dynamic and inventive Asia. The Chinese have been inventive for 5,000 years ... before we were cleaning off the woad. They have staying power.
We have proved that we have not.
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