2 March 2009

'ARMAGEDDON' DEBT CRISIS LOOMS FOR UK SAYS WATCHDOG

Saturday February 28,2009
By Gabriel Milland Political Correspondent

BRITAIN is about to face a debt "Armageddon" unless there are massive tax rises and cuts in spending, one of the Government's own watchdogs has warned.

Audit Commission chief executive Steve Bundred, who is in charge of monitoring how taxpayers' cash is used, said the next Government could face an economic Doomsday scenario.

It would immediately have to start paying back cash Labour has spent bailing out banks and trying to pump life into the economy.

National debt would otherwise add up to 65 per cent of Gross Domestic Product by 2010-11.

He added: "At that scale of indebtedness, the Armageddon scenario most feared by the Treasury - that there will be insufficient lenders to match the planned level of borrowing - begins to look a distinct possibility."

An all-round collapse in lending caused by over-borrowing would leave families, businesses and the Government with no credit at all.

Britain would be forced to turn to the International Monetary Fund for a bail-out, which it might not be able to provide. In effect, the UK would be bankrupt. Before the downturn began, total public debt was just 36.3 per cent. The EU caps member states at 60 per cent.

Mr Bundred added: "That's why tax increases and spending cuts are inevitable immediately after the election, assuming that there are signs of economic recovery by then."

He said in a newspaper article that the Government had already breached internationally agreed definitions of "reckless" fiscal policy.
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Compared with what lies in the future, earlier recessions like the 1970s could "look like days of wine and roses quite soon".

Mr Bundred warned: "Any managers of a public service who are not planning now on the basis that they will have substantially less money to spend in two years time are living in cloud cuckoo land."

Shadow Treasury Minister Greg Hands said: "This is yet more evidence of how Gordon Brown did not fix the roof while the sun was shining and why the country desperately needs a Government that will ensure both fiscal discipline and spending restraint."

Westminster observers noted that Mr Bundred's outspoken attack was the third from a senior economist against Mr Brown this week.

And they pointed out that the fact such figures were now publicly prepared to pin the blame for Britain's economic meltdown on Mr Brown was the clearest indication yet that senior Establishment figures believe he faces a heavy election defeat.

Mr Bundred's attack came just hours after the Governor of the Bank of England, Mervyn King, also warned that Mr Brown had allowed debt to spiral out of control.

The Treasury has already said that that Government debt will go over £1trillion in 2012. But bank bailouts, the VAT cut and less coming in as tax will push it far higher.

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