Economic news Embassy 40
UK economy ‘heading for catasrophe’
The British economy is “heading in the same direction as Greece and will fall off a cliff” if the Coalition Government fails to take drastic action to tackle Britain’s mounting public debt, economic attachés heard at a recent AERL business breakfast at the Institute for Economic Affairs.
In a trenchant talk to diplomats, Mark Littlewood, the director of the think tank, said despite austerity measures to reduce the budget deficit, the Government was continuing to add to a mountain of public debt.
He predicted that by 2015, servicing debt would be the third biggest item in the UK budget, adding that the “inexorable rise” in public spending over the past two decades meant UK debt now amounted to £80,000 per capita.
Continuing with the same policy would be an “inter-generational cheat” because future generations would be forced to foot the bill, he said.
Asked what his solutions were, Mr Littlewood said government spending needed to be halved from 45 per cent of GDP to 20 per cent, with a larger role for the private sector in health and education.
Quoting IEA research, he said raising taxes would not generate sufficient revenue and may have the opposite effect. He also called for more deregulation and simplification of the tax code.
Asked his views on French President Francoise Hollande’s policy that governments in Europe should “spend more to grow more”, Mr Littlewood said in a weak Eurozone this would merely add to the debt.
He added that the crisis in Greece was a signal that there was something “systematically wrong” with the European economy.
But diplomats doubted whether in a democracy such as Greece would be able to push through such radical measures.