Monday, November 24, 2008
Well, we knew it would be bad, but we didn't know quite how bad.
Despite some £6bn pa of extra taxes from 2010-11, Darling is forecasting a huge borrowing binge. As George immediately pointed out, in the next five years the government will borrow nearly £0.5 trillion, doubling the existing National Debt. By 2012-13, our official National Debt will be 57% of GDP, higher than at any time since the early 70s (and it was only that high then because we were still paying for WW2).
And remember that's all on top of the massive debt he's accumulated guaranteeing the banks, and it excludes all the hundreds of billions of Enron off-balance sheet items.
But the worst of it is that, even though Darling's projected borrowing is gob-smacking, he's only been able to keep it as low as it is by making some ludicrously optimistic assumptions on economic growth.
He's assuming an extraordinarily mild recession, with GDP falling by only 0.75% cumulative this year and next. That's much less than it fell in the last two recessions, and they didn't incorporate a global financial crisis. Even whackier, he's assuming growth then returns to an average 3%pa from 2010-11 onwards - which is actually higher than he assumed in his last forecasts.
It is pie in the sky.
And he's no better on public spending. Not only is he assuming another £5bn pa of those non-existent Gershon "efficiency savings" (see many previous blogs), he's also claiming he'll restrict public spending growth to 1.2% pa in real terms. Given that he'll be dealing with much higher unemployment spending, it will be fascinating to see what he plans to cut... and how he plans to locate some backbone.
We'll post again once we've had a proper look at the report. But this is a bad news budget that's actually even worse than it looks.