King warns victor of electoral oblivion

30 April 2010

The political party that wins the general election faces a future of electoral oblivion due to the austerity measures, which will be needed to correct the public finances, Bank of England governor Mervyn King has warned.

With the Institute for Fiscal Studies predicting Whitehall departmental budget cuts of 25 per cent or more in order for the Conservatives and Labour to keep their pledges on protecting education and health spending, King admitted privately to US economist David Hale that public anger would build once the axe fell.

''I saw the governor of the Bank of England when I was in London and he told me whoever wins this election will be out of power for a whole generation because of how tough the fiscal austerity will have to be,'' said Hale.

Other financial experts have talked of tax hikes equivalent to 6p in the pound and a 50-50 chance of Britain losing its gold-standard credit rating. As well as mass public sector redundancies and pay cuts, benefits may have to be frozen and VAT could be hiked up to cement international confidence in Britain's ability to repay government debt.

King has repeatedly called for government to develop a credible plan for tackling the deficit, despite his politically neutral role. The Bank of England did not deny Hale's claims about the conversation.