Punctured Britain

April 7, 2009

If British chancellor Alistair Darling now occasionally tires of being reminded of his party’s erstwhile promise of  “no more boom and bust”, he won’t thank British accountancy firm Grant Thornton  for sending journalists a bike puncture repair kit.

Billed as “Darling’s economic repair kit — fixes deflation in all business cycles”, the marketing gimmick highlights the serious challenge facing Darling as he prepares to deliver his annual budget to parliament on April 22.

Researchers at the non-partisan Institute for Fiscal Studies  say Britain needs to find another 40 billion pounds in savings or higher taxes, equivalent to nearly 3 percent of GDP or £1,200 per family, if it is to balance its budget by the 2015/16 tax year, as Darling promised to do in his October pre-budget report.

IFS Deputy Director Carl Emmerson, who co-wrote the report, told Reuters MacroScope that Darling would have a tough time politically making convincing promises about future tax rises or cuts to government spending, especially as there’s a national election due within little over a year.

But doing so could make it easier for Britain to raise the necessary billions from international debt markets, after a scare last month when the Debt Management Office failed to sell all of a 2049 gilt to investors.

It would also allow more scope to announce a slightly bigger fiscal stimulus package at the budget, said Emmerson — who rejects the idea that the government should start reining back spending or raising taxes in the recession.

(Reuters photo: Pascal Rossignol)

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