Up the proverbial creek...


Britain's current-year deficit of 12.4 per cent of GDP will not automatically fall to 0. The Treasury's latest scenario foresees a gradual reduction to 5.5 per cent in 2013-14, raising the ratio of debt to GDP to 76 per cent, only a little above the Western European average. It is not made explicit how the deficit reduction is to be achieved—spending cuts are no doubt tacitly assumed—except that the growth rate of the economy is supposed to rise spectacularly to 3.25 per cent from 2011 onwards. If the average interest rate on the debt were to settle at 5 per cent, the interest cost on the projected 76 per cent of GDP would be 3.8 per cent of GDP a percentage point more than at present. To accommodate this and still achieve a reduction of the deficit to 5.5 per cent, non-interest spending would have to be squeezed by 7.9 per cent of GDP. Anyone who believes that this will be done has never understood democracy.

Anthony de Jasay, 'Who Is Afraid of the National Debt?', The Library of Economics and Liberty.