IFS queries size of deficit

8 Sep 10
The government's estimate of the structural budget deficit is of 'spurious precision', the director of the Institute for Fiscal Studies has said
By David Williams

7 September 2010

The government’s estimate of the structural budget deficit is of ‘spurious precision’, the director of the Institutefor Fiscal Studies has said.

Robert Chote questioned the current figure – £86bn, or 5.8% of gross domestic product – at CIPFA'sFacing the cuts conference this morning.

He said the fiscal consolidation plans outlined in June’s Budget could be redrawn, and said the Treasury and Office for BudgetResponsibility could ‘end up taking a different view of the size of the hole in the public finances’.

He said: ‘The 0.8% [of the 5.8% figure] indicates a spurious precision. We really don’t know how big that hole is because we don’t know what “normal” will look like in the economy in future.

‘Since the autumn of 2008 the Treasury has on a number of occasions changed its mind about how big this hole is. It started off thinking it was 3% of GDP, and at most thought it was about 6.5% of GDP.

‘That could bobble around, and change the size of the total repair job that is deemed necessary.’

Chote added that the government could end up reducing spending in areas that it has so far marked out as ‘protected’ if cuts in other departments proved impossible.

And he predicted that Whitehall might become more creative in how it maintained spending levels in protected areas, such as international development.

‘I think you will find there will be various imaginative attempts to ensure that spending in other departments will if possible be characterised as overseas aid.’

Chote cited reports that publicly funded BBC World Service broadcasts to Burma were under threat. ‘I imagine there’s someone making an enquiry to the United Nations about whether that can be categorised as overseas aid,’ he said.

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