In 2010, according to the European Commission’s latest forecasts, the UK government will be spending 52.4 per cent of gross domestic product and receiving just 38.7 per cent of GDP in revenue. It will, as a result, have a gigantic general government deficit of 13.8 per cent of GDP. Worse, the UK’s cyclically-adjusted deficit will be 12.2 per cent of GDP. These are numbers one would expect in a time of war.

Only five of the 27 members of the European Union are forecast to have a higher share of public spending in GDP than the UK in 2010: Sweden (57.3 per cent); Denmark (57 per cent); France (56.4 per cent); Finland (54.3 per cent); and Belgium (also 54.3 per cent). But only six EU members will have a lower revenue share than the UK: Romania (33.3 per cent); Ireland (33.5 per cent); Slovakia (34.1 per cent); Lithuania (34.8 per cent); Latvia (36.2 per cent); and Spain (37.3 per cent). Just one member will have a bigger deficit than the UK: Ireland, on 15.6 per cent.

The forecast deterioration in the UK government’s fiscal balance, of 11.1 per cent of GDP between 2007 and 2010, is also the fourth largest in the EU, after Ireland (15.8 per cent), Latvia (13.2 per cent) and Spain (12.0 per cent). How did this fiscal debacle occur? The answer lies far more in spending, forecast to jump by an astounding 8.4 per cent of GDP between 2007 and 2010, than revenue, forecast to shrink by a more modest 2.6 per cent of GDP.

The remainder of the article can be read here. Debate from our panel of economists appears below. 

May 8, 2009 1:23am in Fiscal policy | Comment