Budget: Hammond faces spending dilemma, says IFS

Budget: Hammond faces spending dilemma, says IFS”

If the OBR reduces its forecast to 1%, the IFS said, the deficit would more than double to nearly £36bn by 2021-22.

It went on to observe that, if Hammond is serious about his fiscal aims, the "likely significant deterioration" in the public finance forecasts means there is "little space" for Budget giveaways.

'So what is a chancellor to do?' The IFS said: 'The first Budget of a new parliament is often the best chance a chancellor has to set out their stall.

"If the OBR were to decide that the bad productivity growth of the last seven years were now the new normal (the "very poor" scenario, under which output per hour grows at just 0.4% a year), without further policy action structural borrowing would rise above 3% of national income (almost £70 billion) in 2021-22 and rise further thereafter".

A spokesman said: "We will continue to take a balanced approach, dealing with our debts while also investing in our public services, to build an economy that works for everyone".

Were the OBR only to downgrade its growth forecasts in line with other forecasters, including the Bank of England, then the lower borrowing this year could still mean borrowing being forecast to be around £5 billion lower in 2021-22, at around £11 billion, rather than the £17 billion the OBR forecast in March.

A Treasury spokesperson said the United Kingdom had a "successful and resilient economy" and that the Government was committed to improving the standard of living for people across the country.

The Budget on November 22 is shaping up to be a crucial moment for the government and Mr Hammond personally - after he came under intense pressure over a series of missteps. Yet the pressures to spend more are becoming increasingly intense while the parliamentary arithmetic makes tax increases look very hard.

It comes as the Government faces demands for more money from public sector workers, the NHS and schools and benefit recipients.

Mr Hammond should abandon his commitment to reach a budget surplus by the mid-2020s, because it was "no longer sensible", Mr Emmerson said, claiming flexibility was required to address high levels of political uncertainty and economic pressures.

"That's likely to continue, whatever the chancellor announces".

Shadow chancellor John McDonnell said the IFS analysis showed Tory economic policies had failed and that it was time for a change of direction.

'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 Treasury said it had made good progress in reducing borrowing but that the national debt was far too high.

Thomas Pope, one of the authors of the report titled, "Autumn 2017 Budget: Options for easing the squeeze", said Hammond had been dealt a very tricky hand.

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