Binge borrowers

Steve Bundred, chief executive of the Audit Commission, has written in today's Times on the subject of government borrowing. He won't have won any friends in Downing Street by what he has said:

Most economists and ministers now believe that a prudent fiscal policy means not allowing public sector debt to exceed 40 per cent of GDP. But the Government is under no obligation to manage the public finances with this target in mind. Indeed, Britain is not even bound by the 60 per cent limit in the Maastricht treaty, as Margaret Thatcher managed to win an opt-out from the relevant article.

This is just as well, given what has happened since last year. With the debts of the nationalised and part-nationalised banks now on the public sector balance sheet, the ratio of public sector debt to GDP in the UK exceeds that of Italy and Japan. And it is set to grow much higher. On the basis of the planned levels of borrowing, it could exceed 65 per cent of GDP in 2010-11.

And at that scale of indebtedness, the Armageddon scenario most feared by the Treasury - that there will be insufficient lenders to match the planned level of borrowing - begins to look a distinct possibility.

That is why tax increases and spending cuts are inevitable immediately after the election, assuming that there are signs of economic recovery by then - and why any managers of a public service who are not planning now on the basis that they will have substantially less money to spend in two years time are living in cloud-cuckoo-land.

Encouraging it isn't. You may think that any Chancellor or Prime Minister who presided over failure on this level should lose his pension.

You can read the full article here.