IFS fuels economy debate
An Institute for Fiscal Studies (IFS)report urging George Osborne to avoid a Budget giveaway looks set to fuel debate on the economy.
The respected economics thinktank predicted that borrowing as a percentage of national income would be lower than forecast in 2015/16 – but insisted the chancellor should not use this as an excuse to ease the cuts burden.
“Having set out his fiscal consolidation plan, it is important that chancellor George Osborne resist the temptation to engage in any significant net giveaway in the Budget,” the IFS wrote.
“Any fiscal loosening aimed at helping the economy could be ineffective if it prompts an offsetting monetary tightening, and risks undermining investor confidence that the remainder of the fiscal consolidation plan, in which the chancellor has set such store, will be delivered.”
Today’s study provides comfort for both sides of the political debate, however, as it also urged Mr Osborne to prepare “alternative plans” for a worse-than-expected scenario.
It said the chancellor’s plans faced major risks – including planned spending cuts proving “formidably hard to deliver” and wider problems with bringing the deficit down.
“With such large downside risks to the public finances, having alternative plans to hand could prove useful,” the report added.
“The government should review its spending settlements in a couple of years’ time in light of any changes to the economic and fiscal outlook, or particular difficulties faced by departments in delivering spending cuts that are palatable to the government and the wider public.”
The IFS’ advice follows hot on the heels of an update from another economics thinktank, the National Institute for Economic and Social Research.
Its report called on ministers to defer some of the decisions taken in last October’s comprehensive spending review, following the 0.5% contraction in GDP seen in the final quarter of 2010.
