THE Institute of Economic Affairs has called for draconian cuts by the government and has said that government spending will have to fall by 25% to meet its debt target.
It stated yesterday in its ‘Defusing the Debt Timebomb’ review that: ‘Government spending would have to fall by around a quarter to keep debts under control due to the pressures of an ageing population in the UK.’
It added: ‘Political promises to pay for future pensions and healthcare are not included in measures of public sector debt, which at present stands at over 75% of GDP.
‘In the face of an ageing population our long-term fiscal situation is unsustainable unless significant spending restraint or reform of social security entitlements is undertaken.
‘The only alternative would be crippling tax hikes for our children and grandchildren.’
In Defusing the Debt Timebomb, authors Prof Philip Booth and Ryan Bourne find that the scale of the debt challenge would necessitate a reduction in government spending equivalent to £168 billion each year (to reduce the debt-to-GDP ratio to 20% by 2063.)
This is comparable to halving health, welfare and pensions spending, or cutting overall spending by a quarter.
This report’s key findings are:
‘• The government’s own figures show a need to save an amount equivalent to scrapping all NHS spending immediately.
‘OBR figures show that to have a national debt of 20% of GDP by 2063/64 we need a more or less immediate and sustained fall in government spending of 6.5% of GDP – around £112 billion.
‘This is roughly equivalent to scrapping all current transfers to pensioners, including the state pension, or ending all NHS spending.’
The report notes that ‘If we are more realistic about healthcare productivity, likely immigration policy, as well as the composition of spending (the government still ring-fences spending in several expensive areas) total spending cuts necessary to keep debts under control would be equivalent to £168bn every year from now.
‘This means that to ensure a sustainable national debt of 20% of national income in 50 years’ time, government spending must be cut by 25%.
‘This is equivalent to halving health, welfare and pensions spending. These adjustments would hit the debt target, but would not allow any room for tax cuts.’
It concludes that: ‘Realistically, the debt time bomb is likely to be defused by a combination of:
‘l Changing eligibility for pensions and healthcare.
‘Raising the state pension age further and linking increases in the state pension only to increases in prices would help the public purse significantly.
‘It may also be inevitable that pricing or charging for some aspects of healthcare be introduced to reduce demand in some areas.’
The report urges: ‘The government should try and boost work participation for those aged over 55 by removing employment protection legislation in areas which currently incentivise early retirement.’
It urges: ‘Fundamental reform of pension and healthcare provision.
‘Replacing the state pension with a compulsory, private defined-contribution pension arrangements – which have succeeded in Australia – should be considered.
‘Compulsory healthcare insurance system would also benefit future generations.’
The report makes it perfectly clear that in a situation of a desperate capitalist crisis there is no future for the working class and the middle class under capitalism.
The only way forward for working people is to get rid of capitalism with a socialist revolution that expropriates the bosses and bankers and brings in a planned socialist economy.
