First published: The Daily Telegraph, 22/03/2010
After the Budget and the election, two things are needed to put public finances on to a sounder and more credible footing: time and imagination.
Both major parties are looking to halve the public borrowing share of GDP over roughly five years. When to start matters. Financial markets and credit rating agencies could revolt if there is no instant tightening but the much bigger fear is how they would both react if the economy were to fall back into recession prematurely. There is no need to rush if the new government phases in austerity in the context of a transparent and credible plan, in which the specifics of tax and programme changes are spelled out.
Imagination is needed to address wrenching structural changes in the economy, exposed by the crisis. These goes beyond the predictable cutting of waste and freeze in public pay, which represents 30pc of current spending. It means addressing the structural loss in tax revenues (e.g. broadening the VAT base, carbon taxes, removal of benefits from the better-off, and of certain company tax breaks); prioritising employment generation in public spending decisions (e.g. a meaningful shift from current to paltry capital spending, including education); and introducing labour market reforms (e.g. bringing forward and….more
