By David Milliken
LONDON (Reuters) – Britain’s Institute for Fiscal Studies (IFS) estimated on Thursday that there was a 90% chance that public borrowing in four years’ time would be higher than the government’s budget watchdog has forecast.
The IFS – a non-partisan think tank closely watched by politicians and economists – said borrowing in the 2027/28 tax year was likely to be 40 billion pounds ($49 billion) higher than the Office for Budget Responsibility (OBR) forecast in March, at 3.1% of gross domestic product rather than 1.7%.
Finance minister Jeremy Hunt will set out new OBR forecasts and budget plans on Nov. 22, when he will seek to reconcile lowering inflation with fellow Conservative lawmakers’ desire for tax cuts ahead of a national election expected next year.
Borrowing in the 2022/23 financial year totalled 128 billion pounds, or 5.1% of GDP, as Britain’s government spent heavily on energy subsidies after Russia’s invasion of Ukraine pushed up households’ and businesses’ heating bills.
The IFS said OBR forecasts were unable to adjust for the tendency of British governments to borrow more during unexpected shocks such as the COVID-19 pandemic, but to spend the benefits of any unexpected tax windfall.
“Past experience suggests that Chancellors don’t respond symmetrically to economic shocks. This represents a non-trivial risk to the accuracy of official borrowing forecasts, and potentially to fiscal sustainability,” IFS economist Isabel Stockton said.
One solution could be to limit new tax and spending measures to a single fiscal event each year, rather than the current budget in the spring and fiscal update in the autumn, she said.
Britain’s opposition Labour Party – which is leading the Conservatives in opinion polls by a wide margin – said last week it would aim to limit tax and spending measures to a single budget event in November.
One of Hunt’s Conservative predecessors, Philip Hammond, expressed a similar aim in 2017.
($1 = 0.8241 pounds)
(Reporting by David Milliken, Editing by Kylie MacLellan)