Tuesday, October 05, 2010
Is Britain's budget deficit the worst in the G20?
Posted by David Smith at 01:30 PM
Category: Thoughts and responses

The politics of the government's clumsy axing of child benefit for higher rate taxpayers, which will surely have to be revisited, are that you have to show the better-off are suffering in order to be able to spread the pain more widely. But if this 1 billion cut is symptomatic of the problems in securing the other 80 billion or so, things are going to be difficult.

The economics of the cut are that tough action is needed to cut a gaping budget deficit. That is true and both George Osborne and David Cameron have said the problem is underlined by the fact that Britain has the biggest budget deficit in the G20. It is a small point but that is probably not true. Last year, according to the IMF, America had a deficit of 12.5% of GDP, compared with 10.9% for Britain. This year, 2010-11, the Office for Budget Responsibility says Britain's deficit will be 10.1% of GDP, below America's 11%. The government is right to stress the need for fiscal action but it shouldn't talk up Britain's problems beyond what the data will permit.

Meanwhile, there was good news in the service sector purchasing managers' index, which rose from 51.3 to 52.8, though new business growth was weak. On Monday the construction sector PMI also showed a rise.