Austerity is “far from over”, despite the fact that the Chancellor will unveil an improved outlook for the public finances in the Spring Statement next week, the Institute for Fiscal Studies has warned.
Public borrowing this financial year has been undershooting the forecasts of the Office for Budget Responsibility made at the time of the November Budget, due to stronger than expected income tax receipts, and this may give Philip Hammond an extra £10bn of leeway at next Tuesday’s announcement.
The latest public borrowing data shows that on a 12-month rolling sum basis, the current budget - which excludes capital investment - actually went into surplus in November 2017. Achieving balance on this deficit measure was George Osborne's original 2010 target.
However, the IFS stressed on Friday that this improvement did not mean the pain of the cuts already pencilled in for benefits of public spending could – or were likely to be – cancelled simply due to the recent improvement.
“On current policy “austerity” is far from over,” said Carl Emmerson, the IFS’s deputy director.
“Higher inflation means that this April the freeze in the nominal value of many working age social security benefits will bite much harder than before. The continued roll out of cuts to tax credits and of universal credit will also hit many low income families. Meanwhile cuts in many areas of public service spending are set to continue. Delivering a [overall] budget surplus by the mid-2020s, which the Government is currently committed to, will remain far from easy.”
The National Audit Office warned earlier this week that many councils are close to financial breaking point due to a 50 per cent cut in their central government grants since 2010, while pressure on social care budgets has soared.
Mr Emmerson from the IFS said that “before the champagne corks start popping” at lower public borrowing forecasts next week it was important to recall that Mr Osborne had tightened his deficit rediction target in 2015 to a £10bn overall Budget surplus by 2019-20, which is still likely to be significantly missed.
“A large part of this deterioration was ascribed by the OBR in 2016 to the likely effects of the decision to leave the European Union,” Mr Emmerson noted.
The IFS’s downbeat message was echoed by the Centre for Policy Studies think tank.
“The task of shoring up the public finances is not yet complete – and Britain’s productivity levels are still well below where they could or should be. It is addressing these issues that should be the Chancellor’s priority,” said Robert Colville, the CPS’s director.
