Osborne at risk from downturn

GEORGE OSBORNE'S spending plans are on a knife-edge and could require a fresh round of cuts or tax rises to balance the Government's books before the next election, experts have warned.
George OsborneGeorge Osborne
George Osborne

Analysis by the Institute for Fiscal Studies suggests the Chancellor has left himself very little wriggle room to achieve his own target of ending the deficit in Government spending by 2020.

Fuel duties will have to rise with inflation, child benefit taken away from more higher earning families and the higher rate tax threshold frozen to keep the spending plans set out by Mr Osborne before Christmas on track, it said.

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Better-than-expected forecasts by the Office of Budget Responsibility handed Mr Osborne an unexpected £27 billion bonus in last year’s review of Government spending.

The IFS said the Chancellor had drawn up spending plans which will give the Government a surplus of just £10 billion in 2020 meaning relatively minor changes in the world economy could throw them off course.

An unexpected fall in Government tax receipts or increase in demand for benefits would leave Mr Osborne facing the choice of fresh cuts to spending or tax rises.

Mr Osborne has made his pledge that the Government should run a surplus in “normal times” the centrepiece of his plans for public spending.

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But Government’s have managed to achieve a surplus just eight times in the last 60 years.

IFS director Paul Johnson said: “Mr Osborne’s new fiscal charter is much more constraining than his previous fiscal rules.

“Uncertainty in the fiscal forecasts means that he may well have to cut spending further or raise taxes to get to surplus in 2019/20. With public spending reaching historically low levels relative to national income, promises on tax cuts to keep and pay for, and pressure on revenues from a number of taxes, there may be more tough decisions to come.

“How he responds to any further unpleasant fiscal surprises may, more than anything we have seen so far, come to define his period as Chancellor.”

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The IFS analysis follows increasingly gloomy forecasts for the global economy and the Bank of England pushing back future rises in interest rates.

A Treasury spokesman said: “The latest growth figures show that despite turbulence in the global economy, Britain is pushing ahead.

“With the risks we see elsewhere in the world, there may be bumpy times ahead - so here in the UK we must stick to the plan that’s cutting the deficit, attracting business investment and creating jobs.”

But Labour argued the IFS analysis vindicated its criticism of Mr Osborne’s focus on ending Britain’s deficit spending.

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Shadow chancellor John McDonnell: “The truth is that no one believes the targets that the Chancellor sets anyway as he hardly ever meets them. After all, last year was supposed to be the year the deficit was cleared, according to his first budget.

“But by trying to play this silly political game with his fiscal rule, instead of setting a sensible target, George Osborne is risking not equipping our economy for any dangers ahead, increasing cuts to our public services and big tax hikes for working.”

The Chancellor will deliver his next update on the public finances in the Budget on March 16.

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