High-earner exodus will hit public finances, says Moody’s
BRITAIN’S public finances may significantly weaken as pressures including an exodus of high earners, a push to end austerity and an ageing population continue to mount.
New analysis from credit ratings agency Moody’s has underlined a host of problems faced by the government finances.
The warning of fiscal risks ahead comes despite a decade of cuts to public services following the 2009 financial crisis, and show that public debt could be close to 90pc of GDP by 2020.
Politicians have increasingly concentrated the tax take on “a small number of taxpayers for revenue”, the analysis showed.
This meant that the public finances were particularly sensitive to the impact of a “Brexodus” from the City. Any relocation of financial services jobs risks losing the “very wealthiest taxpayers”, the report claimed. The decision of Philip Hammond, the Chancellor, to spend rather than bank the better-than-expected tax haul in the autumn has left less fiscal “shock absorption capacity”, Moody’s said.
Changes to commitments to run a budget surplus by 2020 and other revisions also “speak ill of policymakers’ forward planning ability”, it added.
Despite calls to reverse cuts and pursue bigger spending plans, without raising taxes the UK would put its fiscal strength at risk, given its already large debt burden of close to 90pc of GDP, Moody’s warned.
However, the Government was “running out of options” to cut spending in areas that were not ring-fenced.
This would be especially challenging for the UK as an ageing population places more and more pressure on public services.
Increased health costs will be the biggest problem as the share of older people rises. The Institute for Fiscal Studies estimates this will cost an additional 0.2pc of GDP between 2019 and 2023, climbing to 0.4pc from 2023 onward.
With nowhere to find savings among government departments and demographic costs, the UK was especially vulnerable to “Brexit’s uncertain impact on movements in highly paid professionals”, Moody’s added.