[ccebook.cn]The World in 2010

But even with help from a recovering economy, the government would still be borrowing 5.5% of GDP in 2013.
The Tories will want to set a lower target for the deficit and to get started earlier than Labour, whose plan
essentially starts in 2011. Spending will bear the brunt of the additional cuts, although David Cameron has
ringfenced the National Health Service from real cuts. There will be a public-sector pay freeze in 2011 and
sharp cuts in the budgets of the other big-spending departments providing public services. The Tories will also
look for big savings in the welfare bill.
The precise make-up of the emergency budget will depend upon what Mr Darling himself does in his own
budget in spring 2010, with revised Treasury forecasts and details on how he will squeeze spending. This will
set a new baseline against which the Tories will have to find extra economies. The good news is that the lean
years will follow ten fat ones: the long expansion of the public sector has left plenty of flab that can be drawn
down without biting into muscle and bone.
Even so, Mr Osborne will have to raise taxes as well as cut spending. Labour is already planning to raise
nearly 1% of GDP from higher national-insurance contributions and a tax raid on higher earners, including a
top rate of income tax of 50% from April 2010. But the Tory chancellor will have to raise probably another
1% of GDP in higher taxes to make up for the loss of the “bubble revenues” that poured in during the credit
boom from the finance sector and buoyant asset markets.
The Conservatives have an electoral mountain to climb, so they may not win a clear majority. That could
unnerve bond investors, who fear they would lack the will to do what is necessary. The health of the economy
will also be crucial. The more entrenched the recovery, the earlier a fiscal clampdown can begin. But,
assuming the Tories do win, their emergency budget will put Britain’s bloated state on a slimming cure during
the first half of the new decade.
Paul Wallace: Britain economics editor, The Economist
Copyright © 2009 The Economist Newspaper and The Economist Group. All rights reserved.
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