UK borrowing set to drop, Johnson still faces spending challenge – IFS
LONDON (Reuters) – Britain’s borrowing set to drop faster than official forecast as economy recovers from COVID-19 pandemic, but possibilities for increased spending to keep Prime Minister’s promises Boris Johnson remain limited, a leading think tank said.
The Institute for Fiscal Studies (IFS) predicted that government borrowing for fiscal year 2021-22 would fall to 180 billion pounds ($ 245 billion), still one of the highest figures on record, but 54 billion pounds less than the government’s Office for Budget Responsibility. (OBR) scheduled for March.
Britain borrowed a record 325 billion pounds last year – the equivalent of 15% of gross domestic product – as the government spends heavily on health care as well as support for workers and businesses on leave during the pandemic.
Finance Minister Rishi Sunak will present a new OBR budget forecast, along with longer-term spending plans, on October 27, when the government hopes to refocus on “leveling” the poorest areas of the country. England, where Brexit-friendly voters swung in favor of the Conservative Party in the December 2019 elections.
However, the IFS said Sunak will have less money to gamble on than the overall drop in borrowing might suggest.
“The combined effects of the ever-growing National Health Service spending and a smaller-than-expected economy before the pandemic means there will likely be running out of money to spend on many other public services,” the director said. IFS, Paul Johnson.
Rising interest payments on debt – due in part to Britain’s large stockpile of inflation-linked bonds – and longer-term damage from COVID-19 and Brexit means that borrowing is expected to decline more slowly in the years to come.
Sunak has already announced an increase in payroll taxes for workers and employers from April and plans to sharply increase the corporate income tax rate a year later.
The IFS said the tax burden would reach its highest sustained level since at least the mid-1950s.
Outlines of Sunak’s spending plans indicate that daily spending on utilities will increase by an average of 3.2% in real terms over the next three years – in contrast to the decade of reduced austerity spending after the 2008-09 financial crisis.
But most of that increase is for higher spending on healthcare, schools and defense, leaving areas such as higher education, prisons and local services facing short-term cuts and to a medium-term increase of less than 1% per year.
“This might be difficult to reconcile with the government’s pledges on leveling up and welfare reform,” the IFS said.
($ 1 = 0.7332 pounds)
Reporting by David Milliken; Edited by William Schomberg