It is a sign of the times that the Chancellor’s announcement that the UK’s deficit would not now be cleared until 2031 was scarcely mentioned after the Budget yesterday. Yet it is astonishing. The Conservatives were elected in 2010 on a pledge to remove the deficit by 2015. They then delayed this to 2020. Now they are adding a full decade and some. It is hard to believe Labour would have done any worse.
Let us again be clear also that we are merely talking about the deficit, not the debt. The deficit is the amount by which the debt rises. So the debt is soaring to almost unthinkable levels already; that the deficit will not be closed for another fourteen years defies credibility.
The UK Government has tried to reduce the deficit by reducing public spending but, as any business or even household will tell you, it is always easier to clear deficits and debts by raising revenue rather than reducing outgoings. Raising revenue means raising taxes. Or does it?
All other things being equal, raisng revenue does mean raising taxes. Yet in fact there is another way – raising productivity would mean that the amount of revenue raised even from the current tax base with people working current hours would be increased. Since the UK lags at the bottom of Western productivity levels, this increase could be quite dramatic if the UK even moved towards the OECD average.
We are now at the stage, however, where this is a must. Few in the UK are unemployed but many are underemployed. This situation is only worsening as it is masked by headline figures. It is a serious issue, however, because debt levels are unsustainable and can only mean another crash is imminent. Car financing, for example, is now totally out of control; in the South of England and the Channel Islands property prices are simply ludicrous to the extent that they must crash some time; and household debt continues to rise as consumerism (rather than productivity) keeps the economy from stalling completely.
In other words, the UK has to raise productivity now, or it faces another crash. (And all this is regardless of the consequences of Brexit, which will plainly not help.)