Uks Unsustainable Debt Problem And The Growing Need For Debt Consolidation

A report by the European Commission on the long-term prospects for Britain's public finances warns that unsustainable debts are a real risk to Britain. This implies that the nation will be unable to manage its debts and that only default or high inflation can relieve the burden.

The Commission's 2009 Sustainability Report says that Britain will suffer a "sustainability gap" of 12.4 per cent of GDP – meaning tax rises or spending cuts amounting to close to £200bn a year.

The Commission says the black hole in the British public finances is far higher than the EU average of 6.5 per cent. It implies that, as Britain's population ages and makes increasing demands on the NHS and state pensions, governments will have to make even more painful decisions on public services and taxation in the decades ahead than so far envisaged. The Chancellor, Alistair Darling, currently plans a tightening of 6.4 per cent of GDP by 2017. The Commission's time horizon stretches to the middle of the century.

The existing crisis in Britain's public finances will be exacerbated by long-term population and social trends such as a pattern of high borrowing followed by debt advice, says the Commission: "To put public finances on a sustainable path, the United Kingdom should improve its structural primary balance in a durable manner by 12.4 per cent of GDP. In principle, this adjustment could take place via both an increase in revenues and cuts in expenditure. Alternatively, the social protection system would have to be reformed to decelerate the projected increase in age-related expenditure."



Ignominiously for ministers, Britain is placed in the same sin bin of fiscal profligacy as the Czech Republic, Cyprus, Ireland, Greece, Latvia, Lithuania and Romania. The Commission says that by next year four EU members – France, Hungary, Portugal and Britain – will have debts between 80 per cent and 100 per cent of GDP.

Since it is continuingly difficult for the public to get consolidation loans the only viable option for many is to seek debt help.