As the election campaign moves into its final stages there remains one ‘elephant in the room' which no politician really wants to talk about - the deficit and how after the election this will be tackled.
We are all aware that the deficit this year is projected to increase by around £167 billion, but we are then told that it is due to decline over the next few years as the economy recovers and as the proposed increases in National Insurance kick in. Indeed the Treasury currently projects that the deficit will “only” be £74 billion by the fiscal year 2014/15, so everything is fine – well no, absolutely not!
Recently I have noticed that figures such as £167 billion just trip off the tongue of newscasters and are easily shown on the pages of newspapers so I thought it might be interesting to see what such a figure looks like in its true form – £167,000,000,000. Now that is a lot of zeros and a lot of commas but for me it still doesn’t really give enough gravitas to the size of the problem. So how about this, if I were to say that a million seconds is just over 11 days and a billion seconds is around 32 years does that help? Or how about this, £167 billon is equal to spending over £225,000 every single day since the time of Christ. Are we now starting to really appreciate the size of the problem?
Now I want us to remember that £167 billion is just the deficit for one year, the accumulated debt is mounting up year on year and we all have to pay the interest on that debt. So let me throw another figure at you, according to the Office for National Statistics at the end of December 2009 general government debt was £950.4 billion, equivalent to 68.1% of GDP. Now that is a big number!
The simple fact is that the deficit is huge, it has to be tackled by the incoming government and to be frank using arguments such as ‘we can pay for xyz by cutting wasteful spending’ is generally simply not being honest with the electorate. I am sure that there is ‘wasteful spending’ but does it really amount to tens of billions of pounds?
The simple truth for me is that after the election taxes are going to have to go up, it may be VAT or it may be further reductions in the tax benefits on pension contributions or it might be through, for example, fiscal drag but taxes are going up and at the same time spending in certain areas is going to be slashed.
My recommendation therefore is that you advise your clients to take maximum advantage of the various tax efficient investment opportunities available to them presently such as, for example, ISAs and pension contributions.
The politicians are going to ‘dodge the issue’ in order to get your vote but once in power they are going to have to deal with that elephant.
Andrew Gadd is head of research at the Lighthouse Group
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