David Cameron and George Osborne are set to borrow double the figure Gordon Brown and Alistair Darling were projected to.
One wonders why George Osborne stayed in his job, because the future economic news is so bad. The economy is heading for a generational disaster, an event that, pre-election, the Conservatives warned of, but their post election policies have ensured: decades of slow growth and high debt.
The latest average of private sector forecasts from HMT is that by 2014-15 this coalition will have failed to even halve borrowing.
Borrowing in 2009-10 was 11.1 per cent of GDP. The forecast for 2014-15 is for borrowing to be 6.0 per cent of GDP – that’s versus an OBR current forecast of 4.3 per cent.
But failing even to meet Alistair Darling’s target is not all that will be revealed in the Office of Budget Responsibility’s (sic) autumn report.
Taking into account the new forecasts for slower growth, and thus a smaller economy in 2015, the increased borrowing could have driven total debt at the end of this Parliament to as high as 83 per cent of GDP, up from the original 69 per cent promised by Osborne in June 2010.
These City forecasts don’t include Osborne’s £50 billion of lending he announced last week, (approximately another 3 per cent of GDP).
Including this liability, then, Cameron and Clegg’s increase to national debt will almost double that of either Brown or Major, increasing debt by a record-breaking 33 percentage points of GDP. But this increase also brings debt to the Conservatives’ own red line of unacceptable levels of debt: 90 per cent of GDP.
Just before the General Election, Mr Osborne made the following warning on debt levels:
“The latest research suggests that once debt reaches more than about 90 per cent of GDP the risks of a large negative impact on long term growth become highly significant.”
The long-run cost is growth of one percentage point lower, but at that time we didn’t know the duration of this burden; now we do.
The researchers returned this year with the following bleak news: it takes 23 years to reduce public debt levels. The researchers found 26 cases of countries’ public debt levels exceeding the 90 per cent debt to GDP ratio, and while there were some shorter periods of debt reduction immediately following either of the two world wars, unfortunately 20 of the cases lasted more than a decade.
This is the fate the coalition’s policy has prepared for us.
The coalition won’t have eradicated the deficit. They won’t even have halved it. In fact, they will have broken their own red line of the no-go zone for debt. It’s extraordinary that, even though the City is forecasting this will all be revealed in the autumn OBR statement, Osborne stayed.
He must be gambling that he can take all the heat for this disaster. But because it only took 2 years of policy to achieve this generational risk, this is an historic level of incompetence and the blame will not be contained to No. 11 Downing Street.
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10 Responses to “Risk of 23-year slump as Cameron now forecast to borrow double what Brown was”
Ray Kelly
George Osborne, said the deficit was 10.4% of GDP in his Autumn budget in 2010. The 11.1% still quoted by the Tories was the forecast prior to the election but thanks to growth, it was lower.
Newsbot9
That makes no sense given the negative growth rate.
Newsbot9
If the growth forcast continues to be ever upward and reality it is forever downward the ONS will loose all credibility. To give Osbourne his due, he is working with pretty terrible figures and Europe isn’t helping one little bit.
Nick
Ah yes. Debt = borrowing. Crap.
I am owed a state pension
I am owed a state second pension
Civil servants are owed their pensions
PFI is debt
Public debt will never be reduced unless the government defaults.
e.g State pension – raising the retirement age – default. Median wage earners have lost over 80K because of that theft.
A great legacy from Labour. Too much borrow and spend. Cameron is following your policy of borrow and spend to fix it.After all, you want more spending, and that means more borrowing.
That is just Voodoo.
Now its clear the state can’t pay, so who is going to be hit hardest.
1. Those reliant on the state
2. The middle class – the rich will move their assets – the middle class can’t.
Nick
No government stats make sense.
The best measure of GDP is tax income / effective tax rate. It can’t be fudged.