The Great Debate UK
-Richard Wellings is deputy editorial director at the Institute of Economic Affairs and editor of the IEA blog. The opinions expressed are his own.-
If the Conservatives are elected, as the polls currently predict, they will have to tackle the worst fiscal crisis in peacetime history.
At current spending levels, the government will have to raise around 200 billion pounds a year to fund a huge deficit that has spiralled out of control. Such high levels of borrowing will starve the private sector of investment.
There is also a real danger that the markets will eventually refuse to lend money in the absence of a realistic programme to pay off the debts. At the very least, investors in gilts may demand a larger risk premium. This would mean higher interest rates which would raise the cost of financing the debt, risking a debt spiral.