Inside Politics – The Policy Exchange newsletter (London), 12 October 2007
By focussing on the politics of the mini-budget, the media missed the economics. The government predicted that growth would slow down from 2.75 to 2.25 per cent while borrowing would increase to £36bn from a predicted £30bn.
2.25 per cent growth is far from disastrous – it’s in line with the rest of Europe – but the borrowing figures are indeed worrying. Since the last recession in the early 1990s the British economy has grown for more than 60 consecutive economic quarters. Textbook economics suggests that such a sustained period of growth should have been accompanied by balanced budgets or budget surpluses – but it hasn’t.
On the contrary, the state of the government’s finances have deteriorated, especially since the turn of the century. Government debts have accumulated year on year while the economy was growing, and part of our economic growth was due to the corollary increase in public spending.
But what happens when, as suggested in the PBR, the economy begins to slow down? The current budget situation leaves hardly any room for manoeuvre, so budget deficits could well become excessive in the near future. This tax’n’spend’n’deficit approach has left the UK economy increasingly exposed.
The press may have christened our new Chancellor the “Magpie” but real magpies at least accumulate small treasures. Mr Darling, on the other hand, has collected nothing but debt.