Government must tighten finances by an extra 26bn
THE government could balance its books by the year 2015/6 via additional fiscal tightening measures equivalent to £26bn in the next three years, a report by PricewaterhouseCoopers will claim today.
The report will say the government has a responsibility to put the public finances back on a sustainable footing by 2015/6, two years ahead of the government’s Budget schedule. By that time, PwC estimates it will have to close a fiscal gap of around three per cent of GDP.
The firm said policymakers should aim to implement fiscal tightening of around 1.8 per cent of GDP – or around £26bn – by 2013/14, over and above the plans already included in the Budget.
“Irrespective of who wins the next general election, turning the tide of debt through a prioritised approach to taxation and spending will be critical to steering the economy back to sustainable growth in the longer term,” said John Hawksworth, head of macroeconomics at PwC. “Failing to fix the public finances, by contrast, would risk persistently high interest rates, a more volatile currency and a less certain environment for business.”
The report outlined possible tax and spending options to achieve that goal, including an additional rise in taxes building up to around £26bn per annum, alongside real departmental public spending cuts of around nine per cent in the three years to 2013/14. Another option would be sharing the burden of the fiscal tightening evenly between tax rises (£13bn) and real public spending cuts of around 13 per cent, PwC said.
But it added that while the government could also avoid tax rises altogether by reducing departmental spending by around 17 per cent over the period, “the scale of public spending restraint involved would pose a major challenge”.