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Pain today, pain tomorrow

If it were done, when ’tis done, then ’twere well
It were done quickly

The UK has a budget deficit of £178bn and growing. Oh my, that’s a lot of money.

I snuck into Housebuilder Magazine’s HBF Policy Conference Election special event last week and watched housing minster John Healey and Tory shadow Grant Shapps sparring on-stage. That’s the subject for a whole other blog and in many ways was a prime example of politicians politicking.

Afterwards though, they had three economists talking about what we might expect into the coming months and years, post-election. Between them, the three – John Stewart, Ed Stansfield and Michael Saunders – were the perfect economist mix of glass half-full, glass half-empty and ‘we can’t actually afford the glass’ outlooks.

Basically though, there is an awfully long way to go before the UK economy is anything like what might be termed healthy again and some harsh measures will be needed to put us right again. There are few world economies which have further to go to re-establish fiscal stability than the UK. Two of them are Greece and Ireland.

The UK has had a long period of low inflation and of falling costs in terms of imported consumer goods, helped by a very strong pound and partly to blame for the huge overspend of the past few years. Well, the pound is getting weaker against various currencies, inflation is rising and we have a huge black hole in government finances caused by the need to bail-out the banks and the various initiatives to keeping the economy going, including the stamp duty and VAT holidays. And now the EU is making noises about how out of kilter the UK economy is with the rest of the economies.

The chatter about whether we get a hung Parliament is, apparently, not helping matters either, since any Government elected after May/June will need a strong mandate if it is to try and sort things sooner rather than later.

If the economy could be relied upon to grow by 10% year on year for the next, say, five years, we might get away without having to take any nasty medicine. Not even the most optimistic of us could hope for that, which means there will be tax rises. One, two, even three pence on the basic rate, maybe. Another rise in NI contributions, perhaps. Or the extension of VAT to currently non-VAT items – such as food, children’s clothing, books or new housing – which would bring in more money, more quickly to the Treasury coffers.

Whoever gets in, whatever they do, it’s going to be nasty but necessary. And, even more scary, the general opinion seems to be that it has to be done sooner rather than later as the longer we put it off, the worse the mess will be.

Even M&S’s Sir Stuart Rose, the nation’s favourite purveyor of pants, says the government needs to cut the deficit soon: “We know if we don’t take the medicine now, the medicine will be more painful for us to take later.” He’s right. It’s not going to be nice. But it will need to be done.

About Fiona Russell-Horne

Fiona Russell-Horne
Group Managing Editor across the BMJ portfolio.

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