Everyone knows that the public finances are in a mess. Unfortunately, it looks like the Government still aren’t facing up to the scale of the crisis. At the time of the Budget, many senior economists criticised their forecasts for being decidedly optimistic. Now new research by the Centre for Economics and Business Research for the TaxPayers’ Alliance shows what could happen if things don’t work out that well: £2.1-£2.3 trillion in debt by 2017/18 and 3.2-3.8 million unemployed by 2011.
At the same time, the research shows that big tax hikes would have disastrous results for the economy. The 50p tax rate alone will reduce economic growth by 0.4 per cent of GDP, increase public borrowing by £1.8 billion a year and increase the base unemployment rate by 0.8 per cent by 2020/21. The answer has to be spending cuts. Politicians need to do more to set out plans that could seriously bring down spending. Even if the Treasury’s numbers are right the public finances are in a crisis, but if they’re wrong then they could be sleepwalking into another catastrophe. To read the full report, please click here.