The next government could take longer than expected to reduce debt as pressures mount on taxpayers and the NHS, Goldman Sachs warned yesterday.
The Wall Street bank said there was a “significant possibility” that the tightening of public finances could occur “somewhat more gradually” than necessary to meet the debt target.
Labor and the Conservatives said they will stick to current rules that commit to reducing debt – as a percentage of GDP – within five years.
But economists pointed out how difficult it will be if you promise not to increase income tax, national insurance and VAT rates.
Official forecasts suggest the UK will barely meet the target.
Loading: Goldman Sachs said there was a “significant possibility” that the alignment of public finances could occur “somewhat more gradually” than necessary to meet the debt target.
Goldman Sachs economist James Moberly said the UK faces a “tight fiscal environment” heading into the election.
Losses on bond purchases by the Bank of England, as well as higher interest rates on government debt, are adding to the tension.
That debt amounts to a staggering £2.7 trillion or 98 per cent of GDP.
In the financial year ending early April this year, the UK spent £78.3bn on interest.
Moberly noted that “considerable consolidation” (tightening the budget strings by raising taxes or cutting spending) would be necessary to meet the debt target.
Liberal Democrats warned about share buybacks
An influential economist has criticized the Liberal Democrats’ manifesto promise to introduce a 4 per cent tax on share buybacks by FTSE 100 companies.
The party stated that it would encourage companies to invest more money in productive investments, job creation and growth.
But Paul Johnson, of the Institute for Fiscal Studies, said it was an “economically bad idea”.
