Ahead of the Autumn Statement later this month, research from the Institute of Fiscal Studies (IFS) suggests tax revenues could be £31bn below the Budget forecast by 2019-20 because of lower growth, with Chancellor Philip Hammond needing to borrow an additional £25bn if there are no policy changes
The think tank says the fall in tax revenues might be offset by £6bn lower spending if the UK stops any payments to the EU budget. However, the net effect of borrowing £25bn more than forecast in the Budget, would imply a deficit of £14.9bn rather than the £10.4bn surplus that the previous Chancellor, George Osborne, was aiming for.
The IFS says these figures assume all the spending cuts announced by Osborne are delivered, including £3.5bn of unspecified ‘efficiencies’ pencilled in for 2019–20. While they do assume no EU Budget contributions in 2019–20, they do not take account of the income tax cuts promised in the Conservative manifesto but not yet enacted.
The institute warns of further austerity ahead, but says one option for the Chancellor would be to push back the already planned fiscal tightening: for example to implement the cuts to spending on public services more slowly than is currently planned or to push back some of the planned tax rises (such as the apprenticeship levy due to come into effect from April 2017 that is estimated to raise £3bnin 2019–20).
In addition – or alternatively – the Chancellor could announce new measures, the IFS suggests. Based on research by the Office for Budget Responsibility, it says the most effective options would seem to be increased investment spending, followed by increased day-to-day spending on public services, spending on benefits, VAT cuts and cuts to income tax or National Insurance contributions.
The IFS briefing note, Winter is Coming: The outlook for the public finances in the 2016 Autumn Statement, is here.
