Both Labour and Conservatives committed to reducing debt as a share of national income
Current chancellor had penciled in potential cuts for public services such as justice or higher education due to population growth and inflation
High interest payments on existing debt and low expected economic growth could make reducing future debt difficult
IFS issues warning about financial challenges for next UK government
Next government may face choices: spending squeeze, raising taxes, or increasing annual borrowing
Public finances described as 'dark cloud' over election campaign
Taxes projected to absorb larger share of nation's income by 2028-29
The Institute for Fiscal Studies (IFS) has issued a warning about the financial challenges awaiting the next government in the UK, stating that public finances hang over the election campaign like a 'dark cloud'. Both Labour and Conservatives have committed to reducing debt as a share of national income. According to IFS, high interest payments on existing debt and low expected economic growth could make reducing future debt more difficult than in any parliament since at least the 1950s. The current chancellor had already penciled in potential cuts for some public services, such as justice or higher education, due to population growth and inflation. Taxes are also projected to absorb a larger share of the nation's income by 2028-29. To meet existing rules, the next government could face three broad choices: go forward with spending squeeze for services, raise taxes further, or increase annual borrowing which could risk preventing total debt from falling. The IFS warns that an open and robust discussion about how all parties will tackle these challenges is necessary during the election campaign.
Rachel Reeves, shadow chancellor of Labour Party, suggests corporation tax would be capped at its current rate of 25%. The UK spent over £120bn on debt interest payments in fiscal year 2022-23, more than any other public commitment except for health and social care. Net interest payments are projected to rise to 2.9% of GDP by 2029.
The Institute for Fiscal Studies' warning echoes one it made after the Budget in March, when it spoke of a 'conspiracy of silence' that meant major parties were failing to acknowledge potential challenges or spell out how they would tackle those. All parties will be putting forward policies they say will make voters better off in coming weeks, but with most economists coming to a similar conclusion as the IFS, such pledges will be made against a backdrop of constrained public finances which may ultimately impact voters' fortunes.
IFS has warned Sir Keir Starmer to prioritize Labour’s spending plans due to looming public finance issues.
Labour party is expected to take power due to current polling trends.
Accuracy
The state of public finances is described as hanging over the election campaign ‘like a dark cloud’.
Both Labour and Conservatives have committed to getting debt falling as a share of national income.
High interest payments on existing debt and low expected economic growth could make reducing future debt more difficult than in any Parliament since at least the 1950s.
The current chancellor had pencilled in potential cuts in funding for some public services, such as justice or higher education, of more than 10%.
Taxes are on track to absorb a larger share of the nation’s income by 2028-29.
Deception
(100%)
None Found At Time Of
Publication
Fallacies
(100%)
None Found At Time Of
Publication
Bias
(95%)
The author uses language that depicts the financial situation as a 'dark cloud' and warns of impending cuts without specifying which party's spending plans he is referring to. This could be seen as an attempt to create a negative perception of Labour's financial management, even though the article does not provide any evidence of bias towards or against Labour.
For a party to enter office and then declare that things are ‘worse than expected’ would be fundamentally dishonest.[
]The next government doesn’t need to enter office to ‘open the books’; those books are transparently published and available for all to inspect.[/
The UK spent over GBP 120bn on debt interest payments in fiscal year 2022-23, more than any other public commitment except for health and social care.
Net interest payments are projected to rise to 2.9% of GDP by 2029.
Accuracy
The UK Treasury can sustain higher levels of government debt due to its status as a reserve currency sovereign.
The UK's general government deficit is projected to stay above 3% of GDP during the forecast horizon.
UK fiscal rules are not strongly binding and have been changed multiple times since 2011.
The UK has not achieved a primary surplus since 2001 despite a near-constant objective of achieving one.
Deception
(50%)
The article contains selective reporting as the author only focuses on the UK's rising debt and potential risks without mentioning any counterbalancing factors or positive aspects of the economy. The author also makes editorializing statements such as 'This may risk a sudden re-appraisal of the sovereign within capital markets if debt risk is not managed prudently and especially if the reserve-currency benefits of the pound were to weaken.' which goes beyond reporting facts.
This may risk a sudden re-appraisal of the sovereign within capital markets if debt risk is not managed prudently and especially if the reserve-currency benefits of the pound were to weaken.
The current rising debt trajectory represents a concern for our ratings in the medium to long run.
Fallacies
(85%)
The article contains a few informal fallacies and appeals to authority. It also uses inflammatory rhetoric when discussing the UK's fiscal framework and debt management. The author makes claims about the UK's credit strengths but does not provide sufficient evidence for these claims.
. . . this greater debt tolerance means the UK can sustain higher levels of government debt without suffering the same disciplining responses levied by the capital markets on most other advanced economies.
The general elections by January 2025 will result in a shift to a Labour government, in line with the Labour Party's decisive local-election victory earlier this month.
According to the Office for Budget Responsibility, a primary budget surplus of around 1.3% of GDP is needed to stabilise debt medium run, compared against an estimated primary deficit of 1.2% as of fiscal year 2023-24.
Bias
(95%)
The author acknowledges the UK's institutional strengths such as an independent monetary policy and a reserve currency. However, he also points out that these strengths could lead to moral hazard and inadequate fiscal frameworks, which could result in higher debt levels. The author mentions that the UK's fiscal rules are not strongly binding and have been changed multiple times since 2011. He also notes that the UK spent more on debt interest payments than any other public commitment except for health and social care, and that net interest payments are projected to rise to 2.9% of GDP by 2029. The author expresses concern about the rising debt trajectory and the potential risk of a sudden re-appraisal of the sovereign within capital markets if debt risk is not managed prudently.
Net interest payments, % of GDP
The fact that UK fiscal rules have been changed on six separate occasions since 2011 after prevailing objectives became inconvenient does not bolster confidence.
This may risk a sudden re-appraisal of the sovereign within capital markets if debt risk is not managed prudently.
Labour party is expected to take power due to current polling trends.
Rachel Reeves, shadow chancellor, suggests corporation tax would be capped at its current rate of 25%.
Accuracy
The UK economy has been in a low-growth, high-inflation state since the pandemic and is still dealing with the legacy of Brexit.
Labour may not dismantle too much of the current savings and investing regime too quickly.
High interest payments on existing debt and low expected economic growth could make reducing future debt more difficult than in any Parliament since at least the 1950s.
Deception
(70%)
The article contains editorializing and selective reporting. The author expresses his opinion that Labour is being vague about its economic policies and that it may not change much if it comes to power. He also mentions the perceived legacy of Jeremy Corbyn and John McDonnell, implying a negative connotation. However, he does not provide any concrete examples or facts to support these assertions. Instead, he relies on speculation and assumptions about Labour's intentions. Additionally, the author selectively reports information by focusing on Labour's perceived weaknesses while ignoring its proposed policies and plans for economic growth.
Labour may have more wiggle room here than it assumes.
It’s already had a PR backlash for diluting plans to spend £28 billion a year on the green industry.
The Party occasionally struggled to present itself as ‘pro-business’.
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