The next government could take longer than planned to push down debt as pressures on taxpayers and the NHS mount, Goldman Sachs warned yesterday.
The Wall Street bank said there was a ‘meaningful chance’ that bringing public finances into line could happen ‘somewhat more gradually’ than needed to meet the debt target.
Labour and the Tories said they will stick to current rules which commit to getting debt – as a percentage of GDP – falling within five years.
But economists pointed out how difficult that will be given promises not to hike income tax, national insurance and VAT rates.
Official forecasts suggest the UK will only just hit the target.
Burden: Goldman Sachs said there was a ‘meaningful chance’ that bringing public finances into line could happen ‘somewhat more gradually’ than needed to meet the debt target
Goldman Sachs economist James Moberly said the UK faces a ‘tight fiscal backdrop’ heading into the election.
Losses on the bond purchases made by the Bank of England, as well as higher interest rates on the Government’s debt pile, are adding to the strain.
That debt stands at a staggering £2.7 trillion or 98 per cent of GDP.
In the financial year to the start of April this year, the UK spent £78.3bn paying interest on it.
Moberly noted that a ‘sizeable consolidation’ – tightening the purse strings by raising taxes or cutting spending – would be needed to meet the debt target.
Lib Dems warned on share buybacks
An influential economist has slammed a Liberal Democrats manifesto pledge to introduce a 4 per cent tax on share buy-backs by FTSE 100 companies.
The party claimed it would encourage firms to plough more money into productive investment, job creation and growth.
But Paul Johnson of the Institute for Fiscal Studies said it was an ‘economically bad idea’.