Chancellor needs to borrow £19bn a year to 'end austerity' - IFS
The Chancellor will need to borrow an additional £19bn a year by 2022-23 to try to balance the books and meet the Prime Minister’s claim that the government would “end austerity”.
The PM recently promised to increase spending on the NHS, defence and aid and avoid cuts to other public service spending, but according to the Institute of Fiscal Studies’ latest Budget preview this would require extra borrowing and would still leave social security cuts worth £7bn working their way through the system.
This year’s borrowing will be at its lowest share of national income since 2001-02 and given that the government is committed to eliminating the deficit entirely, which stood at £40bn last year, it seems that the “end to austerity” seems unattainable.
The IFS believes that the government will be forced to rise taxes substantially to accomplish the Chancellor’s aim of balancing the books by the mid 2020s.
The new report also points out the likely hit to tax revenues that will come from leaving the EU and the fact that there will be virtually no “Brexit dividend” by 2022-23. The IFS said that savings on contributions to the EU could be less than £1 billion a year by then and the increased spending on Brexit issues such as border security could exceed this small saving.
Nevertheless the borrowing needed has been lowered by £5bn from the OBR’s spring forecast that expected the government to take £37bn.
Paul Johnson, director of the IFS, said: “He could reconcile the PM’s demands by raising taxes, and in principle there are plenty of good options, but the overall tax burden is already high by UK historical standards and he could be constrained by the lack of a parliamentary majority. This is going to be the toughest of circles to square.”
Christian Schulz, chief UK economist at Citigroup and contributor to the IFS report, said: “The slowdown we and other forecasters expected after the 2016 EU referendum did happen, but with a delay. Consumption growth slowed under the pressure of high inflation, while 2018 business investment looks set to be 15% lower than forecast before the referendum.
“As the Article 50 deadline in March next year approaches, more households and business may delay projects, slowing growth even further. However, provided the UK and the EU avoid ‘no deal’ a growth rebound in 2019 is likely, and if the transition lasts long enough, even 2% growth by 2020 seems possible.”