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Start saving for the next fiscal disaster

The UK economy would be unable to cope with any future crises, leading economists have warned.

At a Treasury select committee Budget inquiry, National Institute for Economic and Social Research director Dr Martin Weale said there was no provision in the Budget for dealing with a future economic downturn and the Government should make provisions for one occurring in the next four decades.

He said: “Over the next 30 to 40 years, you might think it is quite likely that there will be another recession. Maybe it will lead to a 10 per cent add-on to the national debt, maybe it will be a 40 to 50 per cent add-on to the national debt. What it does mean is that once we get back to normal times, fiscal policy should be run with the aim of saving up for the next disaster instead of the assumption that there won’t be any more disasters. There will probably be another fiscal disaster in the next 30 or 40 years.”

Capital Economics managing director Roger Bootle said a crisis such as an outbreak of swine flu would also strain public finances. He said: “What I find concerning is if there was to be an enormous burden on the public finances from perhaps, God forbid, some ghastly pandemic of the sort that is in the news at the moment, heaven help us how we would cope.”

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