THE Resolution Foundation economic think tank is warning in a report, Pressing the Reset Button, published yesterday that the Chancellor faces an £84bn borrowing black hole in his Autumn Statement in some four weeks.
Calculating from the average change in forecasts, after the Brexit referendum to the latest OBR projection from March 2016, implies £84bn additional borrowing across the five year forecast period to 2020-21 – with the annual deterioration reaching £23bn in 2019-20.
By 2019-20 that would leave a £13bn deficit, leaving the previous Chancellor Osborne’s plans in ruins. Keeping to Osborne’s plans would mean ‘very significant fresh spending cuts or tax rises’.
The Resolution Foundation looks at two possible ‘reset’ plans which it considers less punishing. The report notes that the Chancellor is under pressure from his party to raise public investment as part of a wider industrial strategy; to help ‘just managing families’ by reversing planned cuts to Universal Credit; and to deliver Conservative manifesto commitments on income tax cuts.
The report considers softening the deficit target by balancing the budget in 2019-20 instead of having a surplus, or aiming for an overall surplus later than 2019-20. The report also recommends higher borrowing of £145bn between now and 2020-21 to increase investment to 2.2 per cent of GDP by 2021.
Matt Whittaker, Chief Economist at the Resolution Foundation, said: ‘Despite the long-term impact of Brexit remaining very uncertain at this stage, there is a strong consensus among economists that post-referendum uncertainty will lead to deterioration in the public finances.
‘The good news for Philip Hammond is that by softening his fiscal target he has significant political and economic room for manoeuvre … But the trade-off for this approach is significantly higher borrowing in the coming years.’