U.K. Chancellor of the Exchequer George Osborne has “effectively abandoned” a key pillar of his fiscal strategy after conceding he will probably miss his debt- reduction target, the Institute for Fiscal Studies said.
The London-based research group also said the spending cuts required to fill the hole in the public finances are “inconceivable,” meaning further tax increases and welfare savings will be needed after the 2015 general election.
Osborne in his autumn statement yesterday said he’s no longer likely to meet his target to begin cutting the burden of government debt in 2015-16 after his fiscal watchdog cut its growth forecasts. The IFS said the rules underpinning the public finances are ripe for reform.
“Osborne has had, effectively, to abandon one of his fiscal rules,” IFS Director Paul Johnson said at a briefing in London today.
The Office for Budget Responsibility said yesterday debt is forecast to peak at 79.9 percent of gross domestic product in 2015-16 and start to decline the following year, a year later than planned. Osborne chose to let the target slip rather than move it or tighten fiscal policy.
Osborne opted not to raise taxes or cut spending overall over the next four years. He instead extended austerity by another year to 2018 after the OBR said the budget deficit will be higher than it previously thought.
“The underlying forecast has deteriorated by almost 36 billion pounds and Osborne has chosen to do nothing about it,” said Gemma Tetlow, an IFS economist.
If spending on health and foreign aid remains protected from cuts after the election, other departments will face reductions of 16 percent in three consecutive years, the IFS said.
“That begins to look inconceivable,” Johnson said. “Further welfare cuts and tax rises must be on the cards. Twenty-seven billion pounds would be required.”
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