The British people are living in a fool's paradise and have yet to understand the gravity of the economic crisis, according a former head of the Financial Services Authority.

'The next six months are going to be extremely delicate in the UK', said Sir Howard
Photo: JUSTIN SUTCLIFFE

Sir Howard Davies, now Director of the London School of Economics, said Britain faces a dangerous rise in the levels of public debt – even taking into account tax increases planned for coming years.

"The next six months are going to be extremely delicate in the UK", he told a gathering of HSBC clients in London. "It is very clear that something dramatic has to happen to control spending: but is the economy robust enough to survive fiscal tightening?"

The Government is already running out of weapons to fight the crisis. While the fall in the pound has helped boost exports and proved benign so far, Sir Howard said that past experience handling sterling crises had taught him that the matters can turn ugly fast once confidence is lost. "The pound never stops where you want it to," he said.

What is disturbing is that the British people seem unwilling to face minimal belt-tightening. Even professors in higher education are balloting to strike, demanding a continuation of boom-time pay raises. "You have the best minds in the country planning to go on strike for 8pc. People are miles away from understanding what is needed."

Polling data shows that 48pc of the public are against any spending cuts and only 20pc see the need for retrenchment. Britons appear to assume that the "fantastic growth in public spending" over the last decade has become an entitlement.

Sir Howard said the reality is that the Government has so far come clean on just half of the fiscal consolidation necessary over the next five years merely in order to stabilize debt. By 2014 we will be among the Big Four of global profligates. "It is not a great club to be in," he said.

Source: Telegraph.co.uk, Oct 15 2009
By Ambrose Evans-Pritchard, International Business Editor