A warning on public spending

It is worth reading Steve Bundred chief executive of the audit commission in this morning's Times as he warns of an Armageddon shock to the system if we as a country continue to borrow.

Remembering the crisis of 1976 when the IMF had to intervene,he was on honeymoon in Amsterdam

I had taken out plenty of spending money from the bank before we left, but I had not had time to change it into guilders. When we arrived I discovered that the pound was falling so fast that no one knew what the correct exchange rate should be, so the Dutch banks refused to change my money.

These words though are important

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."