Monday, 14 June 2010

Growth outlook is gloomy

The Office of Budget Responsibility is expected to publish growth forecasts today that will show those that Labour was working on were hopelessly optimistic. No suprise there.

Many independent analysts have been calling for some time for a body like the OBR. Of course, how independent it really is will be the subject of debate. But, unlike politicians, it does not have an incentive to make out that things are better than they really are.

The boom revenues from taxation are unlikely to return. Public sector net debt is forecast to rise from 36 per cent of national income in 2007-8 to 75 per cent in 2004-15. This alone would raise interest payments to close to 2 per cent of national income.

Moreover, these figures do not take into account the effect of an ageing population on public sector pensions, state pensions and the NHS. Nor do they take into account payments on PFI projects which often have a duration of thirty years.

Retirement ages and life expectancy have got completely out of kilter. However, these are evidently not going to be tackled soon and the Government has no evident appetite to means test free bus passes or winter fuel payments.

We are in for a period of slow growth, rising unemployment and reductions in public services. Whether the public are really ready for this is questionable.


Anonymous said...

What does all this mean for the upcoming budget. Do you think there will be changes to VAT and other tax measures.

Also, corporation tax: a lot of companies seem willing and able to move their HQ to Ireland (10% corporation tax) as opposed to 28% in the UK...

Wyn Grant said...

I am sure VAT will go up, the question is by how much and whether the base will be broadened. There is an attempt to reduce the headline rate of corporation tax, but manufacturing companies don't want to see investment allowancs reduced.