Britain’s net debt as a proportion of national output will skyrocket to 90 per cent in 2010, while the unemployment rate is set to hit almost 10 per cent in the same year, warns a leading economic think-tank.
The Government was under fresh fire over the state of the public finances today after the Organisation For Economic Co-operation and Development said it should be ‘more ambitious’ over tackling the Britain’s soaring deficit.
The OECD report on the UK economy called for ‘more explicit’ spending cuts and tax rises.
The body’s criticism comes just days after Bank of England Governor Mervyn King also demanded tougher goals from Chancellor Alistair Darling to reduce an ‘extraordinary’ public deficit.
‘The schedule for rebalancing the budget after the current economic downturn abates should be more ambitious,’ the OECD report said.
The UK is on course to borrow a record £175billion this year as tax receipts are hammered by recession and spending on benefits and moves to bolster the economy soars.
The OECD said value-for-money savings made in November’s Pre-Budget Report and April’s Budget did not go far enough.
‘There should be more explicit targeting of programmes for expenditure cuts and temporary revenue raising measures should be considered to help expedite the rebalancing of the budget,’ it added.
The OECD’s comments add to the political row which has blazed in recent weeks over the spending plans of both Labour and the Conservatives.
Gordon Brown wants to fight the next election on a platform of ‘Labour investment versus Tory cuts’, but the opposition has accused him of not being honest over the need for cutbacks in public services.
The OECD said the Government could do ‘considerably more’ to bring forward its programme of stabilising the public finances, ‘dependent on how the economy evolves’.
‘Experience in other countries suggests that a focus on expenditure cuts, rather than revenue raising, is associated with more successful consolidations,’ it said.
The think-tank added that restoring the flow of lending to the economy was essential to a recovery – even if it meant nationalising more banks weakened by the crisis as a result.
The OECD said: ‘Although nationalisation creates risks that institutions will be mismanaged or credit poorly allocated, this approach may have some advantages for institutions that are already heavily dependent on public support.
‘Full public ownership would allow banks to be managed to meet the objective of supplying credit according to normal commercial conditions, rather than being managed in the interest of the voting shareholders and their management.’
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