Raise taxes or spend less, chancellor told

Bold BDO expects improved UK growth

In fact the OECD suggests the chancellor’s golden rule – not borrowing to finance current expenditure – could be threatened if public spending continues the way that it is without some kind of adjustment.

‘On the other hand, the more pessimistic OECD projections suggest that, although the golden rule would just be met in the current cycle, a sizeable structural deficit would persist. In this case, meeting the fiscal rules in the future would imply revenue or spending adjustments.

‘It would be advisable to start implementing these changes during the current upswing rather than postpone measures and thereby risk reinforcing the downswing of the next cycle,’ the OECD’s report said.

Monetary policy is also considered by the report which said: ‘Early monetary tightening will also contribute to reducing the risk of macroeconomic instability that may emerge from the housing market, but there is also an issue as to what other policy measures might contribute to this.’

The report will be read carefully by the chancellor and his advisers but it is unlikely to be taken to seriously by the Treasury. Indeed, the report is likely to provide more ammunition for the Tories and Michael Howard as they continue to press the attack on Gordon Brown’s management of the economy.

However, the report isn’t all criticism. It also concludes that stewardship of the economy has been largely effective.

‘All in all, the United Kingdom seems well placed to take advantage of the global recovery and move towards a more broadly based growth that relies less on consumption and housing wealth,’ it said.

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