With a week to go until the result of the 2010 General Election, all the political parties are still too scared to tell the electorate the harsh truth of just how much pain the winner of this year’s election is going to have to administer.

Whilst there is agreement that the size of the structural budget deficit is somewhere in the order of £70 bln to £80 bln, there has been no real attempt by any of the parties to explain just how hard it is going to be to fill in this particular hole, let alone how long it is going to take.

Annual UK GDP is currently in the region of 1.4 trillion pounds and the total amount the UK government expects to have raised in taxes in 2009/10 is approximately £400 billion whilst the government spent £573 bln in 2009/10.

Hence the truth (which the political parties are currently failing to tell the electorate) is that even after the economy fully recovers there will have to be a combination of tax increases, spending cuts and further economic growth which will all have to add up to £75 billion before the country gets back onto an even keel.

Put another way, either government spending will have to be cut by a total of 13% in coming years or total taxes will have to rise by 16% in future years (or more likely a combination of the two).  If you take into account that the NHS budget of £110 bln has been ring-fenced, then the spending cuts to be suffered by other departments will be correspondingly greater.

No party has mentioned VAT.  A rise in VAT from 17.5% to 20% would raise about £13 billion annually.  Expect VAT to be part of any forthcoming tax rise.

After the 2010 General Election, the UK is going to embark on a long, slow path to return its finances to order.  Anyone not expecting this to hurt them in their pocket is deluding themselves.  Stockmarket investors should continue to steer well clear of retailers and approach pub & restaurant stocks with caution.