Political commentator and BBC This Week host Andrew Neil warned the UK was underestimating the size of its sovereign debt problem and could end up in as bad a situation as Greece if it is not reduced.
He told Advantage conference delegates that sovereign debt was now being seen in the markets as just as bad as the sub-prime mortgages that were at the heart the credit crunch and recession.
Neil said because of the distraction of the election attention has been drawn away from the anger in Germany of the possibility that Greece may have to be bailed out with tax payers’ money.
And he warned the danger was that the Greek crisis would ripple through the Mediterranean and eventually hit Britain which is borrowing as much as Greece as a percentage of GDP.
The new Tory Lib Dem coalition would likely come under great strain, Neil added, because the Euro crisis is leading to calls on the Continent for further political integration.
This, he said, would be strongly opposed by Tory MPs but supported by Liberal Democrats and this issue could lead to the split of the coalition just as it undermined the Wilson, Thatcher, and Major governments.
“Sovereign debt is now seen as bad as sub-prime,” he said. “That’s why the Lib Dems agreed that we need to cut our debt now. The problem in Greece is not a lack of cashflow. Greece is insolvent. There is no way it can avoid defaulting on their debt. If it does the banking crisis will go through the region and we will not be immune from it.”
Neil said the arithmetic of the current financial crisis in the UK means, despite promises made in the General Election there will be cuts across the board and tax rises.
He said pledges that areas of government spending like benefits, health and education would be ringfenced would be ditched as the government looks to find savings. Around 60% of government spending was said to ‘ringfenced’ but Neil said the savings simply could not be found in the remaining 40%.
“The scale is frankly incredible. It just won’t happen. It means in the Home Office that the whole of the British police force would have to be abolished three times.
“What will happen is something we were not told. The fences will be dismantled. Cuts will be widespread and they will be of frontline services. And taxes will rise further than you have been told.”
Neil said there was some good news for business with a proposed cut in corporation tax and that despite the challenges that lay ahead he was optimistic for the future.
“I get the feeling that torch has passed to a new generation. Labour is about to elect a new leader in which a new generation will take over. The 21st century has begun.
“As I look at this new generation I see a generation that’s articulate, represents a modern Britain, is progressive in values, well educated, and wanting to do their best for the country, wanting to bring in new ideas. I see that on the left and the right [of politics].
“There will be difficulties and set backs but I rather welcome this new generation. It’s going to be at least as better as the old and I think will continue to make us proud to be British.”