UK government deficit could balloon to five-year highs - think tank
IFS warns deficit may rise to £63 billion, highest since 2015-2016
UK government borrowing could be as much as £63bn ($80bn,), when the new finance minister releases his first budget next month, which would mark a five-year high, according to the Institute for Fiscal Studies, a think tank.
The IFS, which has repeatedly warned of the strain to future UK finances from the government’s spending plans, said borrowing next year could rise by £19bn from this year, £23bn more than originally forecast.
Rishi Sunak, the newly appointed Chancellor of the Exchequer, presents his first budget on March 11. The IFS estimates government borrowing in 2019-2020 will be £55bn higher than forecast four years ago, but £3.5bn lower than the latest official forecasts.
“Rishi Sunak’s first budget could be the most important fiscal event in years. It will set the direction of policy for the next five years,” said Paul Johnson, director at the IFS.
“The Chancellor is hemmed in by a rising deficit and fiscal targets set out in the Conservative manifesto. They will allow him to increase investment spending, which will be welcome if well targeted. But they will not allow substantial increases in current spending, or tax cuts, to be funded by more borrowing,” Johnson said.
The IFS said that with borrowing not forecast to fall before 2022–23, it was not clear that the government’s election pledge to achieve a balanced budget by that year would be met, even under current policy.
A deficit of £63bn would be the highest since the 2015-2016 fiscal year, when it hit £83.6bn, according to figures from the Office for National Statistics.
Conservative prime minister Boris Johnson’s government has vowed to increase spending to ward off any economic impact from Britain’s exit from the European Union. Former Sajid Javid last September announced the biggest funding increases for public services in 15 years, including more spending on infrastructure.
“Abandoning (this target) now would surely undermine any credibility attached to fiscal targets set by this government,” the IFS said.
The think tank warned that with rising investment spending by the government, even keeping to current budget balance would not see underlying debt fall over the period of this parliament. “Loosening or abandoning the current fiscal rule would put underlying government debt on a clearly rising path. That would not be sustainable in the long term,” the institute said.
Meanwhile, the pound fell widely, dropping by 0.5 per cent against the dollar and 0.6 per cent against both the euro and the safe-haven Swiss franc, largely in line with the broad decline in the UK stock market, which fell to one-year lows as fears over the deadly coronavirus rose.
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