LONDON: Chancellor of the Exchequer Rachel Reeves needs to run primary budget surpluses, a feat Britain last achieved a quarter of a century ago, to get a grip on the country’s “unsustainable” debt trajectory, a leading economic think tank warns.
Reeves will require an extra £50bil at least in this month’s budget to shore up the public finances and create enough of a buffer to guard against future shocks, the National Institute of Economic and Social Research (NIESR) said yesterday.
The think tank warned that much higher interest costs mean the chancellor would have to generate primary surpluses – when revenues exceed expenditure excluding interest payments – just to stop debt ratcheting higher. It said the fiscal situation has been made perilous because interest rates now exceed economic growth.
Britain has not managed to deliver a primary surplus since 2001-02 when Tony Blair was Prime Minister.
Public debt back then was below 30% of gross domestic product, whereas today it is close to 100%.
The analysis laid bare the dismal backdrop facing Reeves ahead of the budget on Nov 26, with the chancellor setting the stage for major tax increases to fill a hole in the public finances running into tens of billions of pounds.
In a direct appeal to voters, she refused to reiterate Labour’s election commitment not to raise income tax, VAT or national insurance payroll levies.
David Aikman, director of NIESR, said that the “trajectory of UK public debt is becoming unsustainable”, with the burden set to exceed 100% of gross domestic product unless sufficient action is taken.
A year after raising taxes by almost £40bil in her first budget, Reeves once again finds herself with a large gap to fill if she’s to meet her main fiscal rule that requires tax receipts to cover day-to-day spending by the end of the decade. — Bloomberg
