Post global financial crisis in September 2018, Gordon Brown decided to bail out U.K. banks by taxpayers' £700 billion. George Osborne when he came in power in May 2010, he introduced a five year rigid plan in an Emergency Budget to reduce the increased fiscal deficit. His plan was to do this by reducing pubic sector expenditure by 80% and increase taxes by 20%.
I immediately wrote to The Financial Times THEN in a 4-page critique of this plan and suggested it was fundamentally flawed. It would have been better if the split was 50/50. Two FT journalists telephoned me and told me the Critique made sense but did not publish such a long Critique.
Mr Osbourne not only totally failed to reduce the fiscal deficit, but managed to almost double the cumulative fiscal budget deficit of 42% to a cumulative deficit to 82% of GDP by March 2016. Public services provision deteriorated, wages were stagnant, living standards went down and inequality increased.
Bank of England kept interest rates to 0.5% and quantitative easing of £350 billion for banks to lend more; private and household debt increased not to invest but to spend on consumption ; government introduced various Help To Buy schemes, middle classes took advantage and increased their portfolio of buy to let residential properties and both inequality and housing shortage increased.
It is true that does not make economic sense to continue an annual fiscal deficit of £50 billion, pay an annual £59 billion interest on the cumulative fiscal debt and continue a policy of low taxes.
The solution is to gradually increase taxes only to reduce the annual gap as well as improve public services by paying them more.
Nagindas Khajuria
By email
