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UK To Miss Fiscal Targets

by Robert Lee, Tax-News.com, London

31 August 2012


The UK coalition government is unlikely to meet either its deficit or debt target, a new report has warned, also claiming that there is confusion as to what the government has actually achieved so far.

The report, "A Distorted Debate: the need for clarity on Debt, Deficit and Coalition Aims" was composed by Ryan Bourne and Tim Knox for the Centre for Policy Studies (CPS). The authors re-evaluate the coalition's stated aims for the economy in light of recent figures.

The report points to the fact that, when the coalition entered office in 2010, its aim was to eliminate the current structural deficit by the end of the current parliament, which is scheduled for dissolution in 2015. It also pledged to stem the increase in public debt as a proportion of GDP.

However, according to the report, these pledges now seem increasingly unachievable. The deficit has fallen by around a quarter since 2010, but the cyclically-adjusted deficit had only been reduced by 13% by the end of 2011/12. Spending cuts have not financed this. Only 6% of the planned current spending contraction has so far been implemented, the report shows. Instead, the great majority of the reduction in the deficit was found to have come from cuts to investment spending and tax hikes.

The debt picture is not much better. In nominal terms, the official national debt is forecast to rise by GBP605bn (USD957bn) over the life of this parliament. This means it will have increased from 53% of GDP in 2009/10 to 76% of GDP in 2014/15. Poor growth figures and higher than expected government borrowing in July indicate that it is even less likely that debt will be put on a downward path until the next parliament. The result is that the coalition's mandate will not be met on unchanged policy, the report warns.

The rest of the report also makes for grim reading for the coalition. Polling taken for the report show that there is confusion over what the coalition has achieved so far. The report blames politicians and journalists, who it says have at times suggested that the government is reducing the national debt. In fact, only 39% of the public correctly identified that it is the budget deficit that has been reduced since 2010, compared with 28% who believe this to be untrue.

Commenting on his report's release, Ryan Bourne said: “The polling results show two things: that the public is unclear about what the coalition’s ambitions are, and is unclear about what the coalition has achieved in terms of the public finances since 2010. Despite what many people think, it was never the coalition’s ambition to reduce the national debt within this Parliament. What’s more, it’s becoming increasingly probable that, on current policy, neither of the coalition’s original fiscal mandates are going to met."

"With the recent dreadful borrowing figures, now would be a good time for the coalition to restate the scale of our fiscal problems, and to set out how they will be addressed. Only by having a clear knowledge of the problems and solutions on offer from the different parties will the electorate be able to make an informed choice in 2015.”

TAGS: tax | economics | fiscal policy | gross domestic product (GDP) | budget | United Kingdom

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