By 2021 there will be a loss of £65bn to the economy, the IFS predicted, basing its analysis on the Office of Budget Responsibility figures, which accompanied the Budget announcement on Wednesday.
IFS director Paul Johnson said yesterday: “[Forecasts] now suggest that GDP per capita will be 3.5% smaller in 2021 than forecast less than two years ago in March 2016.
“That’s a loss of £65bn to the economy.”
“The knock on effects on forecast borrowing are obvious – it will be pushed up,” Johnson added.
This comes less than two years since the former chancellor George Osborne promised a surplus of £10bn by 2019-20.
Current chancellor Philip Hammond is now predicting a deficit of £35bn, falling to £25bn by 2022–23.
But this does not mean an end of austerity, Johnson pointed out.
“There are still nearly £12bn of welfare cuts to work through the system, while day-to-day public service spending is still due to be 3.6% lower in 2022–23 than it is today,” he said.
“Excluding health, the cut for the rest of public services is over 6%.”
To maintain spending in per capita terms public service budgets would need to be £13bn higher in 2022-23 than currently planned, according to the IFS.
The think-tank said Hammond is still on course to meet the 2020 target for borrowing to be less than 2% of national income, but with rather less headroom than before.
It said the chances of getting to budget balance by the mid 2020s looked “remote”.
If the government were to maintain the deficit at the just over 1% of national income projected for the early 2020s, it would take until well past the 2060s for debt to fall to its pre-crisis levels of 40% of national income, assuming there were no recessions over the next 50 years, the IFS analysis concluded.
Johnson also noted that earnings are set to be £1,400 lower than forecast in March 2016 - still below pre-crash levels, as inflation has risen to 3%.
On public sector pay the Johnson said civil servants “should not be holding their breath” for a rise above 1%.
Yesterday civil service unions hit out at the lack of action in the Budget on the public sector pay cap.
Labour’s shadow chancellor John McDonnell said the IFS’ analysis had exposed the “appalling failure” of seven years of austerity economics, which had “plunged public services into crisis”, “trashed” productivity growth and lowered living standards.
