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Monday, 13 July 2009

A step in the right direction

The Centre for Business and Economic Research (CEBR) says the next government will have to deliver a drastic £100 billion programme of tax hikes and spending cuts to repair the ailing public finances.

They say this would be needed to get the UK's budget deficit down to £50 billion by 2014-15. I suspect this would not be enough. With less government spending 6ax recipts would also be down. I figured a while back that 28% cut in government spending would be needed to wipe out the deficit, so a 20% cost cut/tax hike is needed to bring it to £50 bn rather than the 14% proposed by the CEBR.

The CEBR says that if the Conservatives win the next election, the gap will be plugged with £20 billion in tax rises and £80 billion spending cuts. If Labour retains power, it forecasts £40 billion of tax hikes and £60 billion of cuts.

CEBR chief executive Douglas McWilliams said: "It is likely that any government - particularly a new one - will be forced by political necessity to announce its fiscal consolidation programme early while it is still possible to blame the need for it on the previous government. And it will look to achieve most of its results within a parliament."

Sounds like he has written of Gordon Brown's chances of re-election, so there should be fewer shoddy economic forecasts. Alistair Darling said in this year's Budget that he expects the economy to contract by only 3.5% and to grow by 1.25% in 2010 and 3.5% in 2011, or net up by 1.125%.

CEBR says the economy will contract by 4.1% this year - compared with the official 3.5% estimate - before growing by just 0.6% next year and 0.9% in 2011, or net down 2.656%, a 3.8% difference.

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