This is a sombre report but it spells out the options available with
accuracy and clarity. We are gradually seeing (and so must George
Osborne too) the options open to the next Chancellor. But first
some hard policy choices must be made in the question of spending.
For the less spent the sooner mended!
In respect of the headline that's no bad thing. I earned as much in
the ages from 65-72 than in the rest of my life and enjoyed it
thoroughly too! But what is a bit off putting is that most of the
dates given here for restoration of our finances are well beyond any
life-span I can envisage !
xxxxxxxxx cs
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TELEGRAPH 6.5.09
Britons face working until 70 to help bring public debt under control
Britons will have to work until the age of 70, at least five years
beyond the current retirement age, if the Government is to stand any
hope of bringing public debt under control over the next decade, a
report claims.
By Angela Monaghan and Edmund Conway
The scale of the debt that Gordon Brown takes on to fight the
economic crisis means that future governments will have to consider
drastic measures to ease it, according to the National Institute for
Economic and Social Research (NIESR).
The think tank said it would be all but impossible for the Government
to return Britain's total public debt to 40 per cent of gross
domestic product, currently equivalent to £600billion, until 2023.
[see! -cs]
The institute said the Government had three options to bring the
balance sheet back to good health. The first was to raise the state
pension age, from 60 for women and 65 for men, to 70 between 2013 and
2023.
Under existing plans, the state pension age is due to increase to 68
for both men and women between 2024 and 2046. The rise will generate
additional tax revenues and reduce pension payment obligations.
The second option was to raise the basic rate of income tax by 15p in
the pound. Taxes would have to rise by as much as 8p in the pound
even if the retirement age was increased, NIESR said.
The final option was to cut government spending by a tenth, which
would hit the NHS, education and other front-line services.
Ray Barrell, a senior research fellow at the institute, said one of
these drastic measures would have to be taken to bring the burden of
public debt back to internationally-acceptable levels.
"The choice is we have got to raise income tax a lot, cut spending a
lot, or work longer. There is a stronger case for extending working
lives because we're all living so much longer," he said.
The report came a day after shares rose sharply in London, and as the
pound clawed back ground against the dollar and the euro. Many
experts have said the worst of the economic crisis may soon be over.
George Osborne, the shadow chancellor, said the report "graphically
illustrates the shocking scale of Gordon Brown's debt crisis"
He added: "The Prime Minister didn't fix the roof when the sun was
shining and now we will all be paying the price for his mistakes for
a generation.
"Gordon Brown thinks he can fool the British people by pushing all
the difficult decisions until after the election and covering up the
mess in the nation's finances with optimistic growth forecasts.
"Instead we need real spending restraint now and action to get to
grips with our national debt once the recovery is under way."
Last month, the Institute for Fiscal Studies calculated that it could
take until 2032 for the country to pay debts incurred in the current
crisis. The NIESR study is the first time a major institution has
outlined how the debt could be repaid.
The Government plans to borrow £175?billion this year, the largest
sum as a proportion of economic output since the Second World War.
According to last month's Budget, the Government will have to
continue with sizeable deficits until at least 2018 because of the
significant costs associated with the crisis. In addition, the cash
will not prevent Britain's finances from enduring their worst year
since 1931.
The NIESR predicted that the economy was likely to shrink by 4.3 per
cent this year, much more sharply than the 3.5 per cent fall
predicted by Alistair Darling, the Chancellor, in the Budget last
month. Neither can any forecaster rule out the possibility that
Britain faces a funding crisis in the coming years, when investors
might refuse to buy government debt. Mr Barrell said any plans to
raise the retirement age would have to wait until 2013, when rising
unemployment should have passed, after which the Government could
gradually increase the age to 70.
For each extra year worked, the budget deficit would be reduced by 1
per cent of gross domestic product, NIESR calculated.
The institute also said the Bank of England's attempt to stimulate
the economy by spending billions of pounds of newly created money on
government debt was misguided and would fail. [I'm glad somebody is
saying this! -cs ]
Martin Weale, the NIESR's director, said the focus of the policy,
known as quantitative easing, should have been on buying private
sector debt to help companies that were finding it difficult to gain
access to finance.
"The policy of quantitative easing is completely misapplied," he said.
"It is likely to be much like the VAT reduction. It has had some
impact but one won't be able to see any clear effect, and it
therefore runs the risk of becoming a policy failure. The Bank should
have been intervening in the private sector debt market."
The warning came on the first day of this month's meeting of the
Bank's Monetary Policy Committee (MPC). Members will debate the level
of British interest rates and its ongoing programme of quantitative
easing.
On Thursday, the committee is widely expected to announce that rates
will be left unchanged at the historically low level of 0.5 per cent.
The committee is also likely to reaffirm the Bank's commitment to £75?
billion of spending by the end of June, predominantly on government
debt.
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