New Treasury team must not destroy its inheritance

By Michael Burton | 24 July 2019
  • Michael Burton

Putting aside for the moment the impact of a no-deal Brexit, no one in local government can be oblivious to the wider global headwinds blowing up over the UK economy and the public sector finances. After all, the governor of the Bank of England told the sector as much in his speech at the Local Government Association this month in a dizzying canter through global markets.

Paradoxically, in the short-term, this may not be as bad news for the public sector as it appears. The UK deficit is at an historic low, 1.1% of GDP, employment is at record levels, wages at last are beginning to edge ahead of inflation and borrowing is cheap. We are not in the situation faced by the Coalition in 2010 with the deficit at 9.9% of GDP. Even the most right-wing Tories now accept an element of fiscal expansion, preferably in their view through tax cuts but also with some public sector investment. In its review this week the National Institute of Economic and Social Research (NIESR) forecast modest GDP growth of 1% this year and next, assuming an orderly Brexit. It also predicts ‘some loosening of the public purse’ with the deficit doubling to 2%.

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