From coalition to single-party government: what does this mean for UK debt?
The Conservative party consistently portrays itself as the party of fiscal responsibility. Yet, during the reign of the coalition government, public sector net debt rose from £960bn to £1.5tn. That’s an increase of over 50%. Even if we look at UK debt as a proportion of GDP, it rose from 62% in April 2010 to 80% in February 2015. This begs the question: what will change now the Conservatives can govern alone?
Cutting the deficit
The Conservative manifesto explicitly promises to cut the deficit by reducing government spending by 1% per year in real terms for two years, including savings of £12bn from welfare, £13bn of “departmental savings”, and £5bn from targeting tax evasion. The aim is to be in surplus by 2018 and to start paying off the deficit.
While the details of these large and sweeping cuts remain vague, one thing that’s clear is that the Conservative majority will make it much easier to implement cuts. As the FT puts it: “Mr Osborne now has the chance to deliver his first truly Conservative Budget”, and he’s expected to deliver one very soon.
Meeting tough targets
Nonetheless, Paul Johnson, director of the Institute for Fiscal Studies still argues that the proposed cuts are “probably as difficult as those achieved over the last parliament”, and they will have to come on top of cuts already implemented by the coalition. Considering the last government failed to reduce debt, it raises serious questions over the government’s targets.
The task will be made all the more difficult by several bigger issues. Firstly, the International Monetary Fund is predicting sluggish growth for the next year, which means the UK economy is unlikely to be getting a boost from emerging markets any time soon. Secondly, David Cameron’s commitment to an EU referendum is dampening investor confidence and raising concerns over key trade partnerships going forward.
So while we can confidently predict that austerity measures will aggressively target a reduction now that the shackles of a coalition are removed, how quickly that’s delivered, if it’s delivered at all, will depend on circumstances that remain out of the government’s control.
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