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Thursday, 13 May 2010

where's the money coming from?

“Deficit reduction and continuing to ensure economic recovery is the most urgent issue facing Britain,” states the coalition agreement between the Conservative party and the Liberal Democrats. If so, the rest of the document does not live up to the billing.

Compared with budget plans the government has inherited from its Labour predecessor, the agreement included no specific new spending cuts, lots of public spending pledges, copious tax cuts and a commitment to faster deficit reduction.

Unless there are huge spending cuts or tax increases planned but not yet announced, far from contracting, the deficit is about to deepen

from the FT.

Robert Barrie of Credit Suisse has been crunching the numbers and he reckons the fiscal measures so far announced imply a loosening of fiscal policy:

If they were all fully implemented, they would add close to £10bn per year to the deficit. That contrasts with the coalition agreement’s assertion that there will need to be “a significantly accelerated reduction in the structural deficit”, with the new Office of Budget Responsibility ensuring that the numbers add up.

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