Warning on debt
Tories ‘cannot afford promised tax cuts’ says tax think tank
Paul Johnson: government now adrift (pic: Terry Murden)
Boris Johnson has been warned that promised tax giveaways risks pushing up government debt and forcing a return to further cuts in public spending.
A report by the Institute for Fiscal Studies said Mr Johnson’s spending spree will see the government borrow £50 billion next year, shattering its promise not to borrow more than 2% of national income.
Even under a “relatively benign” no-deal Brexit Government borrowing is on course to hit £100bn next year, the Institute for Fiscal Studies (IFS) said, pushing it to levels last seen in the 1960s.
This would mean the UK is borrowing almost as much as the country earns in a year.
In its annual “Green Budget”, the IFS said a no-deal Brexit would mean that a proposed “mini boom” in public spending risks being followed by another “bust” as ministers try to bring public finances under control..
It said the Government’s day-to-day spending plans for public services were now close to the levels implied by Labour’s 2017 election manifesto, and far higher than those in the Conservative manifesto.
The IFS said ministers had now effectively abandoned former chancellor Philip Hammond’s tax and spending rules, including his manifesto commitment to balance the budget by the mid-2020s.
The government is now adrift without any effective fiscal anchor– Paul Johnson
IFS director Paul Johnson, said the figures meant his successor Sajid Javid could not afford any big tax giveaways when he comes to deliver his first budget.
He said that in the event of no-deal, any measures to support the economy would have to be strictly temporary.
“The government is now adrift without any effective fiscal anchor,” said Mr Johnson.
“Given the extraordinary level of uncertainty and risks facing the economy and public finances, it should not be looking to offer further permanent overall tax giveaways in any forthcoming Budget.
“In the case of a no-deal Brexit, though, it should be implementing carefully targeted and temporary tax cuts and spending increases where it can effectively support the economy.”
Borrowing was already expected to top £50bn next year, or 2.3% of national income, the IFS forecast.
Under current spending rules, the government can only borrow up to 2% of national income.
The think tank said day-to-day spending looked set to approach levels that were expected from Labour’s 2017 manifesto, which was likely to cost taxpayers more than plans laid out by the Conservative party at the time.
An HM Treasury spokesperson said: “September’s spending round supported the people’s priorities of health, education and the police within the existing fiscal rules, as we said it would be.
“Beyond that, the chancellor has already said that we will be reviewing the fiscal framework as we turn the page on austerity. In so doing, we will retain a fiscal anchor to public spending so that decisions are taken with a view to the long-term sustainability of the public finances.”