By James Kirkup, and Angela Monaghan
9:47PM BST 12 Apr 2012
An additional and “sustained period of fiscal tightening” will be needed.
Despite the Coalition’s five-year programme of spending cuts and tax increases, the national debt is to rise from 72 per cent of gross domestic product this year to 76 per cent in 2014-15. Debt will peak at £1.5 trillion in 2016-17.
As a sensible precaution against future crises, the OECD said the developed countries should have a long-term goal of bringing debt down to 50 per cent of GDP.
For Britain to hit the target will require austerity measures equal to about 8 per cent of the economy, it was calculated. That is about £126 billion in today’s prices, roughly equal to the scale of the current austerity package. But the costs arising from the recent financial crisis and economic downturn will be relatively minor compared with the long-term costs of an ageing population, the Paris-based forecaster said.
Because higher taxes “adversely affect economic performance” a large part of any future debt-reduction work should come from cuts in public spending.
As well as reforming their health, education and pension systems, governments should seek to rein in spending on benefits and increase the financial incentives for people to work and save