Let me take the first part of that question first, which was about what is happening to the deficit and the debt and what the plans are. You are right. The original plan was to have the deficit broadly sorted by now, but the plan now is to get to a balance in 2019. To be clear, the debt will still be around 75 per cent of national income by 2019.
Beyond that, the Government’s plan is to run a surplus each year in normal times after 2019. The reason that it would give for that is that even running a surplus at the level that is planned for 2019 every year through to the mid-2030s would bring debt down only to where it was just pre-recession, and that is if there are no further recessions. If there was one additional recession, which we might expect between now and the mid-2030s, debt would still be at the mid-50 per cent level even with a surplus in normal times by the mid-2030s. That would be the thinking behind getting to a surplus and then trying to maintain a surplus over that period.
It is also important to be clear that, over the period even after the 2030s, we will continue to be in a world in which demographic change is putting additional pressures on the public finances. We are not aiming for, and the Government is not looking at, a wonderful period after 2020 in which the floodgates can open and public spending can start to rise significantly. As I understand it, this is not a period of austerity to be followed by a period of plenty.
There are, of course, huge uncertainties about all of that, but that is where the plan is and that underpins why the Government is trying to achieve what it says it is trying to achieve.
The Government would say that that is all terribly important because, if we were to enter another significant recession with debt at 70 or 80 per cent of national income and that were then to rise to 120 per cent of national income as a result of that recession, the consequences of possibly losing access to international financial markets or of big increases in interest rates would be devastating. That is the defence. The issue is really how much weight we put on that potentially devastating outcome.
We have never defaulted on debt, but in our lifetimes we have had to go to the International Monetary Fund. Our economy policy was taken over by the IMF in the late 1970s, and the Government wants to avoid that. I put a very small probability on that risk, but the consequences would be very significant.
That is what the Government is trying to achieve and why it is doing it. There is clearly an alternative that would achieve the same thing while not cutting welfare and other spending quite so much, and that is to increase taxes. Tax is about 36.5 per cent of national income, which is relatively low by European Union standards—certainly by the standards of the EU 15, it is one of the lowest percentages. From an economic point of view, there is nothing to prevent us from having tax at 38, 39 or even 40 per cent of national income. It is a big political and social decision. Where we are on tax now is actually where we have been for the past 20 years or so—around 36 or 37 per cent.
My view is that the big political economy debate ought to be more about what we think the sustainable size of the state, and hence the sustainable level of taxation, is, rather than about whether we can borrow £30 billion or £40 billion every year going forward. I suspect that, in the long run, the associated risk is significant—there are costs associated with increasing tax—which is why the trade-off is so big.
That trade-off is exactly as you described it—there are those who are suffering, particularly from cuts in welfare and, for a group of individuals, the universal credit system will be significantly less generous than the tax credits system. As I said at the beginning, in the longer term context, by 2020, our spending on working age welfare will be at its lowest level for about 30 years, although not our spending on in-work working age welfare, interestingly. In 2020, the universal credit system will still be very much more generous than the family credit system was back in 1997 and, on average, at least as generous as the tax credits system was in 2003. It is important to be clear that the change is a reversal of some of what the previous Labour Government did; it is by no means a reversal of everything that it did with tax credits.