Age of Austerity

The stock markets may have rallied over the last year but the effects are longer-lasting. Britain is the last of the G7 countries to be in recession in the third quarter of 2009. Although it may have been right to pursue Keynesian policies of big government and explosive public spending, we must now start to face the prospect of an age of austerity.

The unprecedented scale of the budget deficit can only be stemmed by drastic action. The government must curb public spending on every level and raise taxes. However, raising taxes is perhaps not the best idea - household debts are equally high. If taxes are raised, then consumer demand would contract sharply, threatening a double-dip recession. Although the probability may be small, the consequences are far too much.

There are a plethora of ways to cut our fiscal policy but only one can be certain: our debt needs to be better managed. Throughout the decade, public finances have been grossly mismanaged. We must stop this before we hit a catastrophe. If our debt rises much further, currently at 13% of our GDP, our credit rating could be slashed. Britain will have to pay for this through sky high interest payments.

Whatever happens, we are entering an age of austerity...