By David Williams
9 October 2009
Neither the government nor the Opposition are yet being realistic about driving down government debt, a leading economist has told senior public sector financial managers.
Robert Chote, director of the Institute for Fiscal Studies, was speaking at a CIPFA conference on central government finance on October 8. His comments came at the end of a party conference season that signalled the start of the general election campaign.
Chote added that the public was still only dimly aware of the full scale of the problem. He set out the gap between what the parties have proposed so far and what must be done to bring public debt back down below the target of 40% of gross domestic product.
Under the 2009 Budget, capital spending will fall by 17.3% a year for three years from 2013. By that year, three-quarters of the rise in public sector spending under Labour will have been lost.
‘When we hear the prime minister talking about what is required is some efficiency savings, a few low-priority budgets need to be dealt with… similarly when the Conservatives talk about a £7bn spending cut package, I’m not quite sure that is bringing home to people the scale of the squeeze.’
He said ‘reality was inevitably going to catch up’ with the political argument over Labour investment versus Tory cuts.
Chote acknowledged that a Conservative government might want to bring debt down faster, but outlined how they might struggle to make early savings.
He pointed out that although the Tories have objected to a £30bn rise in spending in 2010/11, two-thirds of that sum comes from rising debt interest and social security spending, while only £3bn is in departmental budgets.
‘How plausible is it you can come up with significant sensible savings in a fiscal year that’s already two months old? Should they be concentrating on that, or on making sensible decisions over the three years of the Spending Review [2010/11 to 2013/14]? I would tend to the latter.’
A rapid reduction in the national debt could not be achieved solely by slashing departmental budgets and would require either welfare cuts or tax rises, said Chote. ‘My best guess is you’ll see a significant tax-raising budget early in the Conservative government, if they come in.’
IFS calculations show that faster fiscal tightening would require cuts to departmental spending averaging 2.9% while taxing families £1,430 extra per year.
9 October 2009
Neither the government nor the Opposition are yet being realistic about driving down government debt, a leading economist has told senior public sector financial managers.
Robert Chote, director of the Institute for Fiscal Studies, was speaking at a CIPFA conference on central government finance on October 8. His comments came at the end of a party conference season that signalled the start of the general election campaign.
Chote added that the public was still only dimly aware of the full scale of the problem. He set out the gap between what the parties have proposed so far and what must be done to bring public debt back down below the target of 40% of gross domestic product.
Under the 2009 Budget, capital spending will fall by 17.3% a year for three years from 2013. By that year, three-quarters of the rise in public sector spending under Labour will have been lost.
‘When we hear the prime minister talking about what is required is some efficiency savings, a few low-priority budgets need to be dealt with… similarly when the Conservatives talk about a £7bn spending cut package, I’m not quite sure that is bringing home to people the scale of the squeeze.’
He said ‘reality was inevitably going to catch up’ with the political argument over Labour investment versus Tory cuts.
Chote acknowledged that a Conservative government might want to bring debt down faster, but outlined how they might struggle to make early savings.
He pointed out that although the Tories have objected to a £30bn rise in spending in 2010/11, two-thirds of that sum comes from rising debt interest and social security spending, while only £3bn is in departmental budgets.
‘How plausible is it you can come up with significant sensible savings in a fiscal year that’s already two months old? Should they be concentrating on that, or on making sensible decisions over the three years of the Spending Review [2010/11 to 2013/14]? I would tend to the latter.’
A rapid reduction in the national debt could not be achieved solely by slashing departmental budgets and would require either welfare cuts or tax rises, said Chote. ‘My best guess is you’ll see a significant tax-raising budget early in the Conservative government, if they come in.’
IFS calculations show that faster fiscal tightening would require cuts to departmental spending averaging 2.9% while taxing families £1,430 extra per year.
