U.K. Debt Could Stay Above Pre-Crisis Levels Until 2060sBy
Institute for Fiscal Studies issues warning in budget briefing
Hammond’s hopes of erasing deficit by mid-2020s look ‘remote’
Britain’s national debt may not fall to pre-crisis levels until “well past the 2060s,” the Institute for Fiscal Studies warned Thursday.
In an analysis of Wednesday’s budget, the London-based IFS said Chancellor of the Exchequer Philip Hammond’s goal of balancing the books by the middle of the next decade looks “remote” after the government’s fiscal watchdog downgraded its outlook for the economy.
“The sorts of modest growth rates currently expected imply that, if we were to maintain the deficit at the just over 1 percent of national income projected for the early 2020s, it would take us until well past the 2060s for debt to fall to its pre-crisis levels of 40 percent of national income,” IFS Director Paul Johnson told a briefing in London. “That assumes no recessions for the next half century.”
The Office for Budget Responsibility now forecasts growth will stay well below 2 percent through 2022 as a result of a more pessimistic outlook for productivity. The revisions add more than 50 billion pounds to borrowing over the next five years, leaving Hammond with less fiscal headroom to deal with any fallout from leaving the European Union.
Johnson said Hammond was “spared maximum embarrassment” as borrowing this year will be lower than previously forecast, and a fiscal tightening is penciled in for 2022-23 after several years of spending increases and tax cuts that peak at 9 billion pounds in 2019-20.
“Taking the figures at face value would probably be a mistake though,” he said. “As the realities of 2022–23 hove into view the purse strings are likely to be loosened once again.”
Johnson hinted that further deterioration in the OBR’s outlook is possible, as the fiscal watchdog had stuck to the assumptions it made a year ago about the impact of Brexit on the economy.
“So despite all this focus on the forecasts the overwhelming fact of pervasive economic uncertainty remains,” he said. “Despite all the gloom we can hope for better –- though we may still fear for worse.”