Almost everyone agrees that the UK economy is in a very poor state, the problem is that our political parties cannot agree, at least in public, on the measures needed to get recovery going for the longer term.

Within 5 years the UK debt is forecasted to grow to £1.4 trillion, that is a staggering 1400 billion pounds.  Reducing debt can only be done through increasing income (eg tax revenues) or reducing expenditure (eg cuts in public spending), or a combination of both.

For an income approach the dilemma is this, if you focus only on the income side, that is raising taxes, it will effectively choke off the economy as the burden of huge tax increases will impact employment and spending, and if unemployment increases too much it will effectively reduce taxable income and worse still increase public spending on unemployment benefits.

For a spending cuts approach, again too much focus will have a negative impact.  Cuts in spending will ultimately lead to cuts in employment and in turn cuts in income from tax revenues. 

Clearly a balanced approach is needed, that is focus on BOTH spending cuts and tax increases.  There are no easy choices here but some thoughts are:

1 – Raise VAT by 2.5%, this will raise over £10 billion per year.

2 – Cut wasted spending, but focus more on spending that has less impact on UK employment.  Examples may be projects such national ID cards.

3 –  Provide greater encouragement for people to go out to work by reducing benefits paid.  There are many opportunities with almost 6 million “economically” inactive people being supported on benefits.

Clearly these are just simplistic headings but getting the economy back on track is about combined measures of increasing taxes and cutting expenditure in a way that is sustainable so as not to push the economy back into recession.