Public spending warning on monetary union

BRITISH public spending may have to be reduced by about 10 per cent to cushion against the possible effects of European monetary union, according one of the authors of The Ostrich and the Emu, a new Centre for Economic Policy Studies report on the problems posed by monetary union for the UK. David Miles, of Imperial College, London, said that it might be necessary to run a government budget deficit of about 1 per cent of gross domestic product, rather than today's 3 per cent deficit. If this were done by cutting public spending, it would mean slashing spending from 40 per cent of GDP to 36 per cent.

However, new money raising schemes, such as abolishing income tax relief, might bring in new money. In addition, if the UK enters Emu in about 2003, he said the change could be spread over six years rather than being carried out overnight.