The sound of fluttering in Downing Street these days derives not just from the chickens coming home to roost but the flap of ministers uncertain what to do about them. Yesterday's figures showing that the country's total debt had soared to a record £799bn, or 56.6 per cent of UK GDP, marked more than another dismal record set in this recession. They pose the brutal question of whether the Government has now run out of the means of dealing with it, or indeed whether it will now have to reverse gear and start cutting off growth by reducing public expenditure and even – dare one mention it – raising taxes.
No one can say that the Prime Minister, Gordon Brown, has not been warned of this. Even before the boom years were over, economists were predicting that government spending was rising too fast and too high. The dramatic collapse of the economy in the last year both masked the problem and exaggerated it. It disguised it by giving Gordon Brown and his Chancellor, Alistair Darling, good reason to try and reflate the economy by way of tax cuts and increased state spending. On the other hand, the downturn intensified the underlying fiscal difficulties by reducing tax revenues and raising expenditure on unemployment and other benefits.
It is to the Prime Minister's credit that his reflationary policies in the large (though not completely in the detail) have worked both to save the financial system from total collapse and the economy from spiralling into a full-blown depression. It is rather less to Gordon Brown's standing that he has consistently refused to face up to the problems of government indebtedness that this would bring.
His quandary now is that, with unemployment still rising and the signs of economic revival still uncertain, never mind an election in the offing, the Government can't afford to slam on the brakes too hard. Yet, with these kind of deficits, it can't go on piling on the debt without endangering the country's credit ratings and burdening taxpayers with the burden of heavy repayments for decades to come. It's a dilemma that is unlikely to be resolved before the election but it is one that the Prime Minister cannot go on denying for much longer.Reuse content