Cutbacks ‘will not stop the national debt rising’
Belt-tightening plans from the Government won’t stem rising national debt, an economic forecaster has warned.
The National Institute of Economic and Social Research (NIESR) said public borrowing would be higher than forecast in 2013/14, while debt as a share of national output would continue to rise beyond 2015/16 — when the Treasury expects it to fall back.
NIESR said: “Plans for fiscal consolidation will not be sufficient to start bringing down net public debt as a share of GDP by the middle of this decade, as the Treasury expects. Instead it will carry on rising.
“Additional retrenchment will be needed, through either extra spending cuts or further tax increases or a mixture of both.”
Chancellor Alistair Darling gas pledged to cut the UK's deficit over the next five years, but has not detailed how. NIESR predicts net borrowing will be 6.8% of GDP in 2013/14, 1.3% higher than official forecasts.
“(This) depends on tighter public spending than the Government has currently planned, but still fails to meet the Government's aspirations for deficit reduction,” the forecaster warned.
The forecaster also predicted unemployment would continue its rise after levelling out to peak at 2.9m in the third quarter of 2011. Official figures have shown the first fall in overall unemployment since the beginning of the recession — 7,000 lower in the three months to November, at 2.46m.
But NIESR warned this would “prove to be a hiatus”.
It added: “Unemployment has risen by less than seemed likely given the severity of the downturn. But employment has fallen by more than expected once we take account of the adjustment of real wages and average hours worked.”