Eeek!

Something very scary to follow my mutterings of a couple of days ago about Gordon's financial management skills (small I thought). At this stage in the cycle, at the end of a long, long, boom, we should have the public finances well in surplus. Ambrose Evans-Pritchard points out that we in fact don't:

The Brussels watchdog said the Government had stretched fiscal policy to the limits and would soon have to "constrain expenditure" to avoid falling foul of the EU's Stability and Growth Pact, a polite way of saying it may have to slash spending during an economic downturn - making matters worse.....The report highlighted a "significant deterioration" in the budget deficit, with "a very substantial risk of breaching the 3pc of GDP deficit reference value in the near term."

Forget all the stuff about our having signed up to do one thing or another. We've got a deficit soon to be approaching 3% of GDP.

This may be storing up serious trouble. During the ERM recession in the early 1990s Britain swung from a surplus of 2pc of GDP to a deficit of 8pc, a net swing of 10pc caused by the move from boom to bust. The degree of slippage from 1989 to 1993 shows how dramatically the public finances can deteriorate.

Can you imagine such a swing today? It wouldn't take all that much you know, not the way that tax revenues are so closely tied to a rising economy.

A possible 13% deficit? And that not including the public sector pensions, the PFI deals, all of which remain off budget....

Eeek!