The Institute for Fiscal Studies (IFS) has warned that the chancellor may have to raise another £11bn per year through tax rises or spending cuts if the economy does not start to pick up soon. This amount will come on top of the £8bn of cuts that have already been outlined for the next budget. The time for the IFS to give its view seems rather calculated: Osborne will deliver his Autumn Statement in under two weeks from now, on December 5.
The IFS also warned that Osborne would lose credibility with lenders if he includes a £35bn quantitative easing windfall as a tool to show that he has met fiscal targets. It said that the Treasury should discount that chunk of cash when the Office for Budget Responsibility assesses what progress is being made to meet the targets. The IFS claims that the quantitative easing sum does not have any long-term effect on the health of the public purse. It also added that VAT may have to be raised to 25% to help raise the cash in lieu of any public spending cuts or income tax rises for the wealthy.
The IFS said in a statement: ‘It would be inappropriate for [the Chancellor] to use these adjusted numbers as the sole basis for judging compliance against his fiscal rules. This would risk undermining the credibility with which he is managing the UK public finances.’ Unfortunately for Osborne, the IFS included a prediction that his original target of having debt as a percentage of GDP falling by 2015 will have to be scrapped. Tax receipts and economic growth are just too weak for this to be a realistic possibility, apparently.
On the plus side, the Office for National Statistics is expected to confirm its estimate that economic growth for Q3 was 1%. Now that it has received more data, the figure should remain firm. Add to that the Confederation of British Industry’s reports of a rise in business confidence and Experian’s reports of an 8.7% fall in business insolvencies compared with last year, and there’s much to continue pinning hopes on. With unemployment falling by tiny increments for much of the last year, too, the UK might just been on an even keel for a better 2013.
Well, here’s hoping anyway…