Chancellor George Osborne may have to resort to big tax hikes or a new round of deep spending cuts to meet his target of turning Britain’s budget deficit into a surplus by the end of the decade, the head of a leading economic think tank said on Thursday.
Osborne has little wiggle room after Britain’s budget forecasters said the economy was set to grow much more slowly than they had previously thought, Paul Johnson, director of the Institute for Fiscal Studies, said on Thursday.
“If things change again, if the OBR (Office for Budget Responsibility) downgrades its growth forecasts again, I don’t think he will be able to get away with anything like this,” Johnson told BBC radio.
“I think he will be forced to put some proper tax increases in or possibly even to find some yet further proper spending cuts,” he said.
Osborne delivered an annual budget statement in Wednesday that included bigger budget deficits than previously planned for the next few years, but still foresaw a budget surplus in the 2019/20 financial year.
Osborne has made the surplus target his overarching priority and is a leading candidate to become Britain’s next prime minister. He has said he will miss another of his goals this year: to keep public debt falling as a share of economic output.
The OBR said the chances of Osborne hitting the surplus target by the end of the decade were only slightly better than 50-50, given the uncertainty around its forecasts.
Speaking in a round of media interviews on Thursday, Osborne said he would not have to resort to big tax increases in order to meet the target.
Some economists have accused Osborne of relying too heavily on accounting manoeuvres to achieve the surplus, such as changes to flows of corporation tax revenues.
“The point of a fiscal rule is to boost credibility. Meeting it only by the use of one-off accounting gimmicks entirely defeats the point,” said Jonathan Portes, principal research fellow at the National Institute of Economic and Social Research, a think tank.