I am living in New York at the moment. I find that Americans who are aware other economies exist have one source of comfort: the US is in bad shape, but the UK is worse. Reading the Green Budget from the Institute for Fiscal Studies forces one to agree: the UK is in a mess. Yet it should still be a manageable mess.
The Green Budget demolishes Gordon Brown’s fiscal reputation: the UK entered the current crisis with one of the largest structural budget deficits in the industrial world and a bigger public debt than most; it had also done less to reduce debt and borrowing than most since 1997; public sector borrowing is set to reach a postwar high next year; rising debt and cuts in investment will reduce the estimated net worth of the public sector to less than half the level Labour inherited; the government’s fiscal rules are ancient history; and, in the unkindest comment of all, “the evolution of the public finances since 1997 mirrors the first 12 years of Conservative governments after 1979: three years of impressive fiscal consolidation, eight years of drift (masked by economic overconfidence) and then a big jump in borrowing thanks to recession and newly discovered structural weaknesses.”
So has this, as a result, become an unmanageable crisis? The answer is “no”, provided confidence in the solvency of the government, the solidity of the currency and the soundness of the economy can be sustained. Subject to these provisos, what lies ahead is not the end of the world. The UK has survived far worse.
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