Britain’s budget surplus promise is unrealistic: Institute of Fiscal Studies

Here’s what the Institute of Fiscal Studies, leading think tank in Britain, has to say on Britain’s post Brexit finances.

On Monday, a think tank stated, the noble aims of British finance minister Philip Hammond to have a budget surplus by the mid-2020s is likely to get derailed next month, with officials revising their rosy assumptions on long term economic growth for Britain.

As per the Institute for Fiscal Studies, Hammond will need to find more than $66 billion a years in savings by 2021, if he sticks to his plans of cutting the country’s budget deficit.

“It is perhaps time to admit that a firm commitment to running a budget surplus from the mid 2020s onwards is no longer sensible,” said Carl Emmerson, deputy director of the IFS, while adding that Brexit did create a further economic uncertainty.

Earlier this month, the Office for Budget Responsibility, a British government agency which creates budget forecasts, said it expects to revise down its long-run productivity growth assumptions when it produces fresh forecasts for Hammond’s next budget on November 22.

Much like the forecast by the Office for Budget Responsibility, the productivity of the British economy has stagnated since Britain’s historic decision to leave the European Union.

If the OBR were to assume that productivity were to continues in a flat-line, then the public borrowings adjusted for the economic cycle is likely to be 69.9 billion pounds in the financial year 2021-22, up by 53.1 billion pounds from the 16.8 billion pounds forecast in March.

As per IFS, in a more likely scenario if the productivity growth of the country were to grow at half of its pre-crisis average, then the country’s public borrowing is likely to rise to 35.8 billion pounds by 2021-22.

The institute went on to add, if this were to happen, it would keep Britain’s government on course to meet its medium-term goal of ensuring that structural borrowing is below 2% in 2020-21; however this would also make it harder for the country to reach its long-term structural borrowing target of a budget surplus by the mid-2020s.

Last week Hammond told the British parliament that he planned to continue with a “measured and balanced” approach to reduce Britain’s public borrowing, aka its structural debt, in the next month’s budget.

Incidentally, Britain’s overall budget deficit has fallen to 2.4% of its GDP, down from 10% when the country’s Conservative Party was in power in 2010.

As a result, according to the IFS, the public healthcare in the country has shown signs of “real strains” with waiting times increasing significantly and prisons facing a shortage of guards leading to more violence.

The British finance minister has also come under severe pressure to finance an end to an effective 1% cap on public-sector pay rises as well as freeze benefits for low-paid, unemployed and disabled Britons.

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