IFS predicts £31bn deterioration in the public finances by 2019-20

8 Nov 16

The UK is heading for a £14.9bn deficit by 2019-20 instead of the £10.4bn surplus projected at the last Budget, according to an analysis of the public finances by the Institute for Fiscal Studies.

In a projection of the public finances ahead of the 23 November Autumn Statement, the think-tank said that lower growth could mean that, with no policy change, tax revenues could be £31bn less by 2019-20 than forecast in the Budget.

The Winter is Coming: The outlook for the public finances in the 2016 Autumn Statementanalysis stated that even were this offset by ceasing to pay £6bn a year into the European Union budget, there would be a net increase in borrowing of £25bn, which “would imply a deficit of £14.9bn, rather than the £10.4bn surplus that George Osborne was aiming for”, it said.

This finding was based on the assumption that all spending cuts announced by Osborne were delivered – including what the IFS called “£3.5bn of unspecified ‘efficiencies’ pencilled in for 2019–20” ­– and took no account of income tax cuts promised in the Conservative manifesto at the last general election.

Chancellor Philip Hammond would face two big decisions, the IFS said.

Firstly, he could introduce discretionary tax cuts or spending increases to boost the economy, but if growth were lower as a result of Brexit he should also prepare for more austerity in the next parliament.

Hammond might also set new fiscal targets, but the IFS urged caution on these.

Report co-author Thomas Pope said: “The new chancellor’s first fiscal event will not be easy. Growth forecasts are almost sure to be cut, leading to a significant increase in the deficit even if all the very challenging spending cuts currently planned are in fact delivered.

Given the levels of uncertainty he might be wise to respond cautiously for now. Any new fiscal targets should be reasonably flexible. Any decisions to increase spending or cut taxes in the short run should be taken in the knowledge that significant further austerity after 2020 looks to be on the cards.”

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