Public borrowing massively increased because of the financial crisis. UK Chancellor of the Exchequer today has to offer, how this situation will be brought under control.
The only way out - Keynes during the Great Depression - is to find a goal, which may even become an excuse for indecisive people increase the costs for someone or something.
This approach dominated the government since the collapse of the banking system approach that dragged the economy into an even more acute phase of recession. His descent - a huge budget deficit. Alistair Darling presented his preliminary report on the budget today, and the main criterion by which it will be judged - is the extent to which it elaborated the depth and detail in the decisions on the budget. Budget constraints will prevail in the economic approach of the next government, whichever party it may be formed, despite the absurd attempts to Gordon Brown to send the economic debate in the direction of "cuts against the investment."
At Darling was a stormy career in the Treasury. It worked well and gained political weight in extraordinary economic times. Being a skeptic, he had previously seen the risks to the global economy after the financial collapse. By analogy with other countries of G7, the government conducts an expansionary policy to sustain demand in times of severe recession, but a radical easing of monetary and fiscal policies, coupled with the rescue of the banking sector, at least, prevent a catastrophe. However, the budget deficit and public debt not hold at current levels. The Chancellor must explain how they would be cut. It is hard to believe that financial stability and growth will be restored without a large cost reductions and tax increases for the next government.
On its own the Treasury, the structural budget deficit has increased significantly (6.4% of national income) in connection with the financial crisis. (Structural deficit - is part of the deficit, which does not adjust the economic growth. This problem must be addressed by raising taxes and cutting spending). According to the Independent Institute for Financial Research, the structural deficit will require additional government borrowing rate of 8% of national income, if not reduced. Sustainable public funding can not sustain this level of debt.
Unlike other countries with developed economies, Britain is still not out of recession. The boom in the UK was due to the financial services and inflationary bubble in housing construction. Therefore, the decline has been so deep and painful. This means that growth could be derailed if fiscal policy is tightened prematurely. And even despite this, the confidence of business and investors will be undermined unless a serious medium-term plan to reduce the budget deficit. According to the budget forecast Darling, the deficit will be equal to £ 175 billion, or 13% of GDP in this fiscal year. At the bottom of the last recession in 1992-93, a similar figure was 8% of GDP.
This is a huge figure. Should be a significant tightening of fiscal policy in the next government. However, the adjustment will be painful. The only modern comparison point - a fiscal tightening measures taken by the Governments of both parties after the sterling crisis of 1975-76. Can not solve the problem mainly due to higher taxes, especially when the economy is still in recession, while household debt remains very high. To count on finding the formula of "efficiency savings", which for some reason eluded previous governments, not taking the problem seriously, the emphasis should bet on cuts in public expenditure directly.
Implausible to suppose that the gradual reduction of departmental budgets, to achieve the goals. All where it leads, it is to demoralize the work in the state apparatus. The public sector has expanded with the government, to achieve financial stability, the size of government should be reduced by refraining from their programs and departments. Darling must explain how and where this happens.
The only way out - Keynes during the Great Depression - is to find a goal, which may even become an excuse for indecisive people increase the costs for someone or something.
This approach dominated the government since the collapse of the banking system approach that dragged the economy into an even more acute phase of recession. His descent - a huge budget deficit. Alistair Darling presented his preliminary report on the budget today, and the main criterion by which it will be judged - is the extent to which it elaborated the depth and detail in the decisions on the budget. Budget constraints will prevail in the economic approach of the next government, whichever party it may be formed, despite the absurd attempts to Gordon Brown to send the economic debate in the direction of "cuts against the investment."
At Darling was a stormy career in the Treasury. It worked well and gained political weight in extraordinary economic times. Being a skeptic, he had previously seen the risks to the global economy after the financial collapse. By analogy with other countries of G7, the government conducts an expansionary policy to sustain demand in times of severe recession, but a radical easing of monetary and fiscal policies, coupled with the rescue of the banking sector, at least, prevent a catastrophe. However, the budget deficit and public debt not hold at current levels. The Chancellor must explain how they would be cut. It is hard to believe that financial stability and growth will be restored without a large cost reductions and tax increases for the next government.
On its own the Treasury, the structural budget deficit has increased significantly (6.4% of national income) in connection with the financial crisis. (Structural deficit - is part of the deficit, which does not adjust the economic growth. This problem must be addressed by raising taxes and cutting spending). According to the Independent Institute for Financial Research, the structural deficit will require additional government borrowing rate of 8% of national income, if not reduced. Sustainable public funding can not sustain this level of debt.
Unlike other countries with developed economies, Britain is still not out of recession. The boom in the UK was due to the financial services and inflationary bubble in housing construction. Therefore, the decline has been so deep and painful. This means that growth could be derailed if fiscal policy is tightened prematurely. And even despite this, the confidence of business and investors will be undermined unless a serious medium-term plan to reduce the budget deficit. According to the budget forecast Darling, the deficit will be equal to £ 175 billion, or 13% of GDP in this fiscal year. At the bottom of the last recession in 1992-93, a similar figure was 8% of GDP.
This is a huge figure. Should be a significant tightening of fiscal policy in the next government. However, the adjustment will be painful. The only modern comparison point - a fiscal tightening measures taken by the Governments of both parties after the sterling crisis of 1975-76. Can not solve the problem mainly due to higher taxes, especially when the economy is still in recession, while household debt remains very high. To count on finding the formula of "efficiency savings", which for some reason eluded previous governments, not taking the problem seriously, the emphasis should bet on cuts in public expenditure directly.
Implausible to suppose that the gradual reduction of departmental budgets, to achieve the goals. All where it leads, it is to demoralize the work in the state apparatus. The public sector has expanded with the government, to achieve financial stability, the size of government should be reduced by refraining from their programs and departments. Darling must explain how and where this happens.
The Times
December 9
December 9
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