‘In the April-July period last year the government borrowed an extra £16 billion. This year they have borrowed an extra £50 billion. It means we are on course to exceed the eye wateringly large sums they forecast for this year’s total borrowing.
Spending is up a massive £19 billion on last year in the first four months, and revenue is down a predictable £21 billion thanks to the VAT cuts and the fall in activity. No wonder the Governor thinks we ought to print some more money - who is going to lend us all this? Interest rate increases to get people to buy more government debt will be the inevitable result of this failure to hit very relaxed targets for spending and borrowing. This will be the mother and father of all crowding outs, as the cash has to go to the public sector to meet these huge bills. The private sector will continue to be squeezed.’
David Cameron’s controversial statement that the government could default on its debts becomes an ever more real possibility because as tax receipts dwindle already unsustainable borrowing becomes reckless. Expect more warnings from Standard & Poor about the UK losing its AAA rating as our debts close in on 100% of GDP.
One piece of advice I hope Gordon Brown takes from Frank Field’s article in today’s New Statesman is to produce a Pre-Budget Report that “ruthlessly and necessarily cuts” public expenditure, but, stroically, I’m prepared for disappointment.