PHILIP HAMMOND may have to abandon his goal of clearing the deficit if he pledges to properly fund public services as part of his Budget next month, a think tank said yesterday.
The Institute for Fiscal Studies (IFS) said the Chancellor’s statement on November 22 may be when he has to admit it is “no longer sensible” to aim to balance the books by the mid-2020s.
Such a confession would be another blow for the Conservatives, who have repeatedly put back the target date for eliminating the deficit since 2010, when then chancellor George Osborne first claimed the public finances would be back in surplus within five years.
IFS deputy director Carl Emmerson said: “Public-sector workers, the NHS, the prison service, schools and working-age benefit recipients, among others, would like more money.
“It is perhaps time to admit that a firm commitment to running a budget surplus from the mid-2020s onwards is no longer sensible,” he added.
Shadow chancellor John McDonnell said: “Instead of dragging millions of ordinary people through the endless misery of Tory spending cuts, the Chancellor now needs to make a decisive break with past Tory failure and end austerity.”
The IFS said that, while forecast borrowing had come down slightly since the last Budget in March, the effect was likely to be “dwarfed” by cuts to estimates for productivity growth given by the Office for Budget Responsibility (OBR).
If the OBR were to cut its current forecast for growth from 1.6 per cent a year to 1 per cent, the IFS said it would add almost £20 billion to the deficit by 2021-22 — taking it to nearly £36bn.
And if it assumed the 0.4 per cent growth of the last seven years would continue, the projected deficit would hit £70bn.