Taxes or cuts of pounds 15bn

THE Government may have to raise taxes or cut public spending by up to pounds 15bn in the next few years to meet its target of a balanced budget, analysis by the Organisation for Economic Co- operation and Development suggests.

The scale of the fiscal problem revealed by the authoritative OECD - equivalent to raising income tax by 7p in the pound - suggests the Chancellor may be forced to relax his borrowing target but also to raise taxes and curb public spending.

The inter-governmental organisation warns the Chancellor, who will discuss his March Budget options with senior officials at Chevening on 9 January, that 'a significant reduction of the structural budget deficit may be required to convince markets of the government's commitment to a medium-term strategy of low inflation'. .

But the Treasury is not likely to move quickly on public finances. Recession may well delay a significant tightening in policy until next year's second Budget in December.

In its latest Economic Outlook, the OECD takes issue with the Chancellor, insisting that a sizeable portion of the deterioration in the deficit is due to factors other than recession - leaving a so-called structural or underlying budget deficit.

Of the worsening deficit between 1990 and 1992, the OECD believes some 30 per cent is structural and does not reflect recession. After a slight tightening of fiscal policy in 1991, the Treasury loosened it this year by 2.1 per cent of national output, over and above the boost to the deficit due to recession, says the OECD report.

OECD data also indicates that by 1994 Britain will have a structural deficit equivalent to some 3 per cent of national output, excluding privatisation proceeds, or up to pounds 15bn.

This conclusion is based on the hopeful assumption that the Government sticks to current plans to limit the growth of real public spending to 0.75 per cent in 1994 and that the economy grows on average by 2.5 per cent a year.

Holding to current plans will therefore reduce public spending as a proportion of national output and automatically tighten fiscal policy.

However, if the Treasury's new control totals for public spending are exceeded, policy may have to be tightened by more than pounds 15bn to meet the balanced budget goal.

The Chancellor and his officials claim in public that the vast bulk of the deterioration in the budget deficit - forecast to widen to pounds 44bn in 1993-4 from pounds 37bn in 1992-3 - is due entirely to the recession. The private view is different. Early this year, an unpublished Treasury study put the structural deficit at between pounds 5bn and pounds 10bn. The OECD believes it is certainly higher.

Last month, Norman Lamont committed the Government to achieving the balanced budget objective, irrespective of whether the deficit was created entirely by a recession-induced collapse in tax revenues or booming benefit spending.

Assuming the Government holds to its planned spending curbs, net government debt as a proportion of national output jumps to 45.3 per cent by 1994, from 35.6 per cent in 1992.

OECD figures also show that alongside many other industrial countries, Britain has a structural deficit that exceeds public investment plans.

Christopher Huhne, page 8

Travel
travel
News
Tim Vine has won the funniest joke award at the Edinburgh Festival 2014
peopleTim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
Sport
sportBesiktas 0 Arsenal 0: Champions League qualifying first-leg match ends in stalemate in Istanbul
News
Jamie and Emily Pharro discovering their friend's prank
video
PROMOTED VIDEO
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Sport
Manchester United are believed to have made a £15m bid for Marcos Rojo
sportWinger Nani returns to Lisbon for a season-long loan as part of deal
News
news
News
i100
Arts and Entertainment
O'Toole as Cornelius Gallus in ‘Katherine of Alexandria’
filmSadly though, the Lawrence of Arabia star is not around to lend his own critique
Life and Style
fashion
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Web developer (C#, MVC4, HTML5, CSS3, Javascript, Jquery)

£30000 - £44000 per annum + Bonus+Benefits+Package: Harrington Starr: Web deve...

Senior Automation QA Engineer (Java, Selenium WebDriver, Agile)

£40000 - £65000 per annum + benefits+bonus+package: Harrington Starr: Senior A...

Web developer (C#.NET, ASP.NET, MVC3/4, HTML5, CSS3, JAVASCRIPT

£35000 - £45000 per annum + benefits+bonus+package: Harrington Starr: Web deve...

ETL Developer (SQL, C#, VBA, Finance, Risk, Hybrid, RDBMS, Jas

£30000 - £40000 per annum + benefits+bonus+package: Harrington Starr: ETL Deve...

Day In a Page

Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment