In the lead up to the Chancellor’s Autumn Statement, our briefing reveals the scale of the deficit waiting for the next Government with newly updated numbers.
By updating the OBR’s March 2014 projections with latest economic forecasts, the SMF has a new estimate of the deficit 2018-19. And the bad news is we predict it will remain stubbornly high.
The OBR’s March 2014 forecast for borrowing is £-1 billion. Our new core estimate is that borrowing in 2018-19 will be £14 billion. This means that borrowing in 2018-19 could be £15 billion higher than currently forecast. Much less of the borrowing than was thought will be eliminated by the proceeds of economic growth; and more of it will persist over time into the next Parliament.
Even with the deep cuts to public spending already planned in the next Parliament when we apply our revised deficit estimate:
- A Conservative Government would miss its target to deliver a surplus in 2018-19. The only way to hit the target would be to rely on surprise over-heating of the economy that temporarily reduces borrowing, or to pencil in further cuts on top of the £38 billion already planned. Based on our estimates of borrowing, this would take the total cuts required to £52 billion after 2015-16.
- Labour would meet their target to run a current budget surplus by sticking to the current Government’s spending plans, but with a much smaller margin for error. They could reduce the current Government’s consolidation plan by up to £10 billion and still meet their target.
- The Liberal Democrats would also need to find an extra £5 billion of further cuts on top of existing Government plans, to meet their target of eliminating the structural current deficit by 2017-18.
When we applied a best case scenario that sees the UK return to the levels of sustainable growth we had in the early 2000s, the need for further cuts in the next Parliament is eliminated. However, if we remain stuck in the same pattern of growth that we’ve had since 2010 then all parties in Westminster will need to go back to the drawing board.
This research has been made possible by the generous support of PwC and is the first paper in a project looking ahead to Spending Review 2015.