Government debt has been soaring.
At £156.1 billion the gap between income and what the UK government spent this year is higher than in almost any other country in the world – including the southern European countries that sparked recent market worries.
Total government debt – at £893.4bn is around 62% of GDP and is widely expected to climb – possibly close to 100%.
More government money is spent on interest payments each year than is paid on the NHS or on the police.
With tax receipts falling and the cost of welfare rising, the recession has made it increasingly difficult for the UK to balance its books.
Anyone in debt knows there is a level at which the cost of borrowing rises so high that it becomes almost impossible to bring borrowing back down.
So that’s the backdrop and that’s the state we are in.
George Osbourne is worried that the markets will go out on the attack on us in the same way that they went out on the attack on Greece. It is still possible. But we’ve got some key advantages over Greece, namely a more flexible labour market, an exchange rate that can be devalued, and debt that is due further out.
Osbourne is going to want to show the markets that he is being decisive. He will be terrified of a downgrade. That’s why I expect some major cuts in the forthcoming budget. Some of it will be in no brainer areas (eg benefits and public sector), other parts will be in areas that will affect the middle classes. Expect to be squeezed. Austerity, we’ve not even seen the start of it yet ……
