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Tue, 7 July 2020

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Government borrowing to soar past forecast after Boris Johnson spending pledges - IFS

Government borrowing to soar past forecast after Boris Johnson spending pledges - IFS
3 min read

Government borrowing next year will be more than double the amount forecast just six months ago, according to a top think tank.

The Institute for Fiscal Studies (IFS) said the Treasury will go a further £50bn into the red, largely due to a combination of increased spending commitments made by Boris Johnson since becoming Prime Minister and a weakening economy.

It means the Government's spending commitments will be close to the levels promised in Labour's 2017 election manifesto - which the Conservatives claimed at the time was unaffordable.

Specifically, the IFS said planned Tory spending on the NHS and the police next year will be higher than Mr Corbyn promised two years ago.

The spending splurge also means the Government will break its "fiscal mandate" to only cap public bor rowing at 2% of national income, as the actual figure will be 2.3%.

According to the IFS, even a “benign” no-deal Brexit could see borrowing rise to nearly £100bn, while debt would climb to almost 90% of national income for the first time since the mid-1960s.

In its Green Budget report, the think tank said: "Given the massive uncertainty over the direction of the economy and public finances, it is hard to conceive of a set of fiscal rules in the short term that would be appropriately constraining and give the Chancellor flexibility to respond to bad economic news."

Elsewhere, the think tank found that on the whole day-to-day spending on public services is due to rise by 4.4% between this year and next - pausing the austerity introduced in 2010, but not "undoing" it.

A no-deal Brexit would likely mean two years of zero GDP growth and a return to just 1.1% growth in 2022, "leaving the economy at least 2.5% smaller even than in a base case of continued delay and uncertainty", the IFS said.

Meanwhile the group recommends that if Mr Johnson wants to make progress on areas outside Brexit, he should "focus on clear priorities, avoid frequent ministerial reshuffles, set clear fiscal objectives, be clear about how spending or other approaches can help deliver its objectives and make space for longer-term thinking".


Paul Johnson, IFS Director and an editor of the Green Budget, said: “Things have changed remarkably quickly in public finance land. Not only is every spending department about to see a budget increase, we have a Conservative Government set to increase day-to-day spending on public services to a level far closer to what Labour promised in its 2017 manifesto than to what was implied by the Conservative manifesto.

"And just since March, we have moved from a position where there looked to be plenty of headroom against next year’s borrowing target to one where that target is now on course to be missed.

"The Government is now adrift without any effective fiscal anchor. Given the extraordinary level of uncertainty and risks facing the economy and public finances, it should not be looking to offer further permanent overall tax giveaways in any forthcoming Budget.

He added: "In the case of a no-deal Brexit, though, it should be implementing carefully targeted and temporary tax cuts and spending increases where it can effectively support the economy.

"It will be crucial that these programmes are temporary: an economy that turns out smaller than expected can, in the long run, support less public spending than expected, not more.”

Read the most recent article written by Nicholas Mairs - Public sector workers to get 5% pay rise from April if Labour wins election

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