Open Road

Thursday Nov 27th 2008

PBR – the terms of the debate have changed

It is rarely that the terms of the political and economic debate change fundamentally in a Budget or a PBR.  But they have this time.

Borrowing of £118 billion is at a quite staggering level.  This is twice as high as John Major had in the mid 1990s and he had to introduce 19 tax rises and massively squeeze public expenditure to deal with.  It took 4-6 years to get the public finances back in shape in the mid 1990s and it will take at least as long as that to do it now.

So the next government – between 2010 and 2015 or thereabouts – whoever they are – will have to massively raise taxes and slash public expenditure.  They will simply have no choice.

Labour’s spending plans in this PBR involve taking the axe to public spending from 2011 to 2015.  According to the IFS, if health spending is protected, then every other government department will need to have a freeze during this period.  All capital expenditure is frozen.  For Labour this is an extraordinary admission.  It has stood for capital investment in the public services ever since 1997 and its criticism of the Tories’ lack of capital investment in the 1990s was one of the many reasons why Labour came to power.  The public services and the public realm will face a massive squeeze for at least five years after 2010.