City AM, 11 June 2015

Senior Economist James Zuccollo wrote an article for City AM where he argued that “we can have sustainable debt without Osborne’s inflexible new surplus rule”.

“Osborne is right to focus on the need for long-term debt reduction: the OBR estimates that, if the current policy settings remain in place, rising NHS and pension spending will cause debt to exceed 200 per cent of GDP within 50 years. In each year since 2010, that has caused the OBR to judge the UK’s policy settings as unsustainable. Sustainability is the greatest challenge facing fiscal policy, but it is not one that can be overcome in a single Parliament. It requires a durable, long-term commitment to changing the shape of the UK’s public services.

The new rule reflects Osborne’s eagerness to deal with the problem. The main argument for reducing debt is that it provides some headroom to respond to the next crisis with extra spending. However, the IMF published research just this week assessing members’ debt positions. It gave the UK a clean bill of health and went so far as to claim that active debt reduction, such as Osborne intends to pursue, should be avoided. Instead, it recommended that the debt burden be allowed to naturally decline as the economy grows.”

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