Contact details

contact email address

Monday, 8 February 2016

Osborne's inflexibility means tax rises or more cuts

The Institute for Fiscal Studies (IFS) is warning that George Osborne's "inflexible" pledge to run a budget surplus "in normal times" from 2019-20 was simple but would require a "precarious balancing act". The result is likely to be "big tax rises or spending cuts with very little notice", the IFS concluded. The IFS publishes its annual Green Budget document ahead of the Chancellor's Budget every year, which is highlighting economic conditions and the challenges that will facing the Chancellor, George Osborne as he prepares his 16th March budget.

The Independent Economic Think Tank has concluded that Mr Osborne's target of a balancing the UK's books by 2019-20 is "inflexible" and could have tax and spending implications were he to receive "unfavourable" economic and fiscal forecasts. Only 4 days ago the Bank of England, in its latest Inflation Report, cut its forecast for growth this year to 2.2%. In November it had predicted growth of 2.5%. The IFS also points out that the UK government has only run a surplus eight times in the last 60 years.

The IFS say that George Osborne's "rule has the merit of simplicity and transparency but is very inflexible and this could come at a cost," the Green Budget continues: "Even if the chancellor gets to the March 2019 Budget with his plans intact, past errors in official forecasts suggest that there would be more than a one-in-four chance that he would need to implement in-year tax rises or spending cuts to deliver a budget surplus in 2019-20."

Alongside a budget surplus the Chancellor still has a programme of promised income tax cuts to deliver, which were promised by the Tories at general election, a promise that will cost £8bn a year and which is currently unfunded. faced uncertainty over what the Treasury might receive in tax, and needed to maintain a squeeze on government spending.

Responding to the Institute for Fiscal Studies ‘Green Budget’ Lib Dem Treasury Spokesperson Susan Kramer said: "The IFS has confirmed that George Osborne's arbitrary spending surplus is increasingly likely to mean more cuts or tax rises which will hurt the public. His surplus target was a political decision designed to help make him Prime Minister. It has backfired and it is a dereliction of his duty as Chancellor for him to damage our economy for his own ends."

Susan Krammer called on George Osborne to change course: "Rather than playing silly games with the country’s finances he needs to abandon this target and take advantage of the historically low interest rates to find the capital spending in housing and digital infrastructure we desperately need to build an economy fit for the future.”