Implications of 2009 UK Budget

Readers Question: Hey, what do you think are the implications of the 2009 Budget?

The most striking feature was the realisation of how much the government was needing to borrow and the depth of the recession.

The Large planned rise in borrowing means that there is little if any scope for further discretionary fiscal expansion. The government may even have to increase taxes before the economic recovery is strong, which could hamper weak shoots of growth. Therefore this puts increased impetus on Monetary policy for boosting spending and economic recovery

High borrowing means prospect of higher taxes and lower spending in the future. Future governments will need to look at structural spending and reduce the structural deficit. This could mean less spending on health, education, defense and Social security. It could even make the next election ‘ a good election to lose’ Forthcoming chancellors will have difficult, unpopular decisions to make.

(Why UK Borrowing increased so rapidly)

However, I don’t think there is any alternative to current borrowing levels. Efforts to reduce borrowing could just make the recession deeper.

Nevertheless there is a risk of the UK losing its triple A credit rating. This would make it more expensive for the government to borrow in the future

See: Options for dealing with large Debt

Impact of 50% higher income tax band


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