Britain’s Financial Quagmire

Ted Bromund / July 21, 2009

The International Monetary Fund has just published its annual “Staff Report” on Britain’s economy. It makes for grim reading. The IMF projects that Britain’s national debt will grow from 43% of GDP in 2007/08 to 73% of GDP in 2009/10. Its budget deficit in 2007/08 was 2.4% of GDP. By 2009/10, it will be 12.8%. And even those projections, though more pessimistic than the government’s widely-panned forecasts, may be too optimistic: the most recent public borrowing figures show that the pace of borrowing is accelerating as revenues fall.

All due to the recession, you say? Not so, say both the government and the IMF: “the structural component of the deficit is almost 10 percent of GDP, or about four-fifths of the total deficit in 2009/10.” In other words, the reason Britain is running such a large deficit is not to balance out the recession, or because of the decline in revenues. It’s because since 2002, expenditures have grown steadily faster than receipts. (more…)