Red alarm: UK government faces £20 billion budget black hole

Philip Hammond faces another £20bn hole in his deficit reduction plans, as the chancellor comes under political pressure to increase spending in the forthcoming Budget.

Analysis by the influential Institute for Fiscal Studies (IFS), published today, shows that a productivity forecast downgrade from the government’s Budget watchdog may leave the total deficit as high as £36bn by 2021-22, before any extra spending commitments. The major report from the UK’s leading economic think tank shows that deep cuts have left the NHS, schools and prisons in a “fragile state”, and have merely returned public spending to pre-financial crisis levels.

The stark analysis adds to pressure on the chancellor as he appears increasingly trapped between the government’s fiscal targets and calls to raise spending as the economy deteriorates and uncertainty over Brexit persists. He is due to deliver his budget on 22 November. “It is hard to see how the chancellor can both maintain the credibility of his fiscal targets and respond effectively to the growing demands for spending”, the IFS said.

The think tank’s report goes on to conclude that in the light of the data, Chancellor Philip Hammond’s plan to abolish the UK’s deficit by the mid-2020s is “no longer sensible”.

Rather than succumb to pressure to spend more, the report noted that additional austerity was planned for the next few years with public spending due to fall by 1.7% of national income and real-term day to day spending would fall by £15bn over the next four to five years.
Further austerity would fall on top of the £12bn benefits cut in the pipeline and the £29bn worth of cuts put in place since the Conservative party entered power in 2010.