No sooner do one set of them write to the Sunday Times demanding faster action on reducing government borrowing, than another group writes to the Financial Times with the reverse call. No wonder George Bernard Shaw apparently wrote: “if all the economists in the world were laid end to end, they would not reach a conclusion”.
The fact remains that every political party knows that whoever wins the next election, there will have to be cuts in government spending and an increase in taxation, if borrowing is not to increase further.
The real question is about timing; will immediate cuts help reduce debt and build confidence, or simply slow the rate of economic recovery and result in a double-dip recession? The architect of spending your way out of a recession was John Maynard Keynes; but the last time it was recommended in 1981, Geoffrey Howe seems to have ignored the advice … and was proved right.
The need to reduce borrowing is self evident. One only has to consider what has been going on in Greece for that to be perfectly obvious. Governments with high borrowing levels, relative to Gross Domestic Product (GDP) and no clear plan to cut their deficits are likely to find it more difficult to borrow in future, when existing debt has to be repaid or replaced. Bond markets need to see action, or they will bet against the government and make interest rate rises inevitable.
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