Three options to tackle the deficit problem: Brazier

UK GROWTH

The war of pre-election spin is over and the new Government is now facing the reality of tackling the budget deficit.

Work needs to start quickly, or the cost of issuing the estimated £800bn of gilts required to fund the deficit over the next five years could rise significantly. When a country has a deficit problem, there are three potential solutions: wait for improving growth to increase the tax take and shrink the welfare burden; hope inflation reduces the real value of its debts; or bite the bullet and promptly introduce a combination of tax hikes and spending cuts. Optimistic growth forecasts are already factored into the Government’s numbers, and we have an independent central bank that is spec...