The UK government is set to break its own strict budget rules as prime minister Boris Johnson leaves public spending plans in “disarray,” according to a top think tank.
Britain has faced almost a decade of austerity as the Conservatives have slashed services and other spending, in a bid to cut the budget deficit that opened up in the wake of the financial crisis.
But a new study suggests Johnson and his chancellor Sajid Javid could be risking the party’s traditional reputation for spending restraint with their plans, which include high-profile pledges to fund the NHS, police and schools.
Public spending could reach 3% of GDP by 2020, blowing through its self-imposed 2% cap on borrowing, according to figures published by the National Institute of Economic and Social Research (NIESR) on Wednesday.
“The previous chancellor [Philip Hammond]’s fiscal mandate will be broken,” the NIESR noted in its report.
Public sector borrowing was at around 1.9% of British GDP last year, but could rise to 2.8% this year and 3% for the following two years, according to the NIESR.
The report also sounds the alarm over the government’s decision-making, warning its sudden scrapping of next week’s budget and failure to publish official economic forecasts were fuelling already high levels of economic uncertainty.
“Fiscal policy we think is very much in disarray at the moment,” said Arno Hantzsche, joint author of the study published in the NIESR’s journal, at a press conference.
“The fiscal position is deteriorating in our forecasts at a time when no budget is being planned and there are no fiscal forecasts.
“We’re concerned by the lack of fiscal strategy – it’s contributing to political uncertainty.”
But Hantzsche said the NIESR backed plans to raise public spending, supporting the economy at a time of weakness in the private sector and reflecting the limited scope for monetary stimulus in an era of low rates.
“We’ve been arguing for some time that because of demographic pressures and the need to maintain quality, public spending will have to increase,” he said.
The opposition Labour party claimed last week austerity had wiped £100bn off growth, increased poverty, infant mortality and rough sleeping and left average workers’ real pay packets lower than before the crash.
Shadow chancellor John McDonnell claimed it was a “dereliction of duty” that the Treasury had not published an impact assessment of the government’s Brexit plans.
The NIESR also warned on Wednesday Johnson’s planned Brexit deal could wipe £70bn off Britain’s long-term economic growth compared to staying in the EU, according to a leading think tank.
The UK would miss out on the equivalent of £1,100 a head every year under the kind of looser trading relationship with the EU envisaged by the UK prime minister, a study published on Wednesday suggests.