Back in June, I predicted major economic problems in 2010 when the Tories win the next general election.
There was an interesting article in today’s Daily Mail that predicted the same thing, but quoted some interesting statistics.
If the Tories win the next election, which based on current form, I think they will, they face some really tough challenges. You could almost say that this is one election they could really do with not winning. Gordon Brown has made such a mess of our economy that as we head into a recession, the public finances are in a shocking state, and will only get worse. The UK is not prepared at all for this as our national debt currently stands at £660bn, which is 44% of GDP, itself higher than Brown’s own ceiling of 40%.
The IMF is already warning Britain that we need to curb public sector spending and/or raise additional tax revenues, but things are only going to get worse.
As the credit crunch bites, recession takes hold and more firms go bust, unemployment could rise to 2.5m by 2010, which would cause a collapse in tax revenue, leading to wider budget deficits of £100bn per year. Unless the government can make up these deficits with higher taxes or public spending cuts, it will simply get added to the national debt.
With the national debt expected to increase to over £800bn by 2010 anyway (50% of GDP), and adding on the money required to bail out Northern Rock and Bradford & Bingley, there are still more liabilities that need to be accounted for, such as the PFI deals that Labour have signed to build new schools and hospitals and gold-plated civil service pension liabilities.
Basically we are looking at the national debt approaching or even surpassing £1 trillion by 2010. This is an horrendous figure for any incoming Tory party to come to terms with and I cannot see how they will tackle this without making major public spending cuts and large hikes in income tax.
It will take years to fix, and it’s possible it will require more than a single term of Tory government to put right. That means they will have to win a second term around 2014-2015, which will be extremely difficult if we have had 4-5 years of higher taxes and public spending cuts.
Unfortunately if the problem is not addressed, the UK faces the same problem that any person who gets into serious debt faces – bankruptcy!
Can you imagine what it would be like if that happened? Our whole economy and way of life would be decimated. We’d probably have to go to the Chinese and Arabic countries for a bail-out – they are so cash rich they could probably "buy" the remnants of Great Britain with their foreign currency reserves!
Food for thought eh?