We're all going to have to suffer if the Government wants to balance the books in the coming years, according to the National Institute for Economic and Social Research. The influential think-tank reckons there are only three possible ways to plug the giant hole in the public finances: extend the retirement age to 70 (eek), hike the basic rate of income tax by about 15p (ouch), or slash public spending by about 10% (yuck). Either way, we'd all be feeling the pain for a long time to come...
Like most economists, NIESR reckons the Chancellor was talking out of his Budget box when he forecast a contraction of 3.5% this year (with a recovery in the later months) - it's predicting a slide of 4.3%, which would be the economy's worst showing since 1931, during the Great Depression. And that wasn't the only bad news in the NIESR's latest report: it's also suggesting that unemployment won't peak until 2011, at about 3.1m (nearly 10% of the workforce); that wages will grow below the rate of inflation until 2012; and that consumer spending will keep declining until 2011. Oh, and it thinks quantitative easing is a waste of time.
As a result, it says, drastic action is required. Rather than extending the retirement age to 68 by 2046, as per the current plan, the NIESR thinks we need to extend it to 70 between 2013 (after the peak in unemployment) and 2023 - every extra year worked would reduce the deficit by 1% of GDP, it claims. However, even then we'd need to push up income tx by 8p in the pound - and without the extension, the hike would need to be more like 15p in the pound. You can imagine how popular that would be - but the only other alternative is savage public spending cuts, which could mean less money for schools, hospitals and other vital services.
Then again, we've also seen some pretty positive stats this morning: food price inflation is down for the first time this year; the rate of decline in the construction industry has slowed; the pound's up against the dollar; while the FTSE hit its highest level in months. And from UK plc's front line, Next reported higher-than-expected sales, with CEO Simon Wolfson suggesting the downturn had 'potentially bottomed out' (we know that's very different from a recovery, but still).
So it's not all doom and gloom. On the other hand, the NIESR is almost certainly right that we'll end up working longer and paying more tax as a result of this recession. Particularly since - on the day the Government started rolling out its £5bn ID card scheme - we can't believe public spending cuts will do the trick...
In today's bulletin:
Brits must work until 70 and pay more tax
Van-maker LDV back from the brink
Tchenguiz vs Horlick - handbags at dawn?
Desperate directors turn to fraud
Eight ways to deal with the threat of insolvency