Britain’s fiscal watchdog has called into question the Chancellor’s target for balancing the books, saying the Government may not eradicate the deficit before 2031.
The Office for Budget Responsibility (OBR) said Philip Hammond’s objective of recording a budget surplus within the next Parliament looked “unlikely”, as the health service and an ageing population heap pressure on public spending.
Speaking after the Budget, OBR chairman Robert Chote said he could not make a definitive judgement, but cast doubt over the Government hitting the target under current policy.
He said: “(The Government’s) stated fiscal objective is to bring the public finances to balance as soon as possible in the next Parliament.
“When the target was set, this would have been 2025/26 at the latest.
“Now this lies beyond our five-year forecast horizon so we can’t judge the prospects definitively. But it does look unlikely that the Government is on course to achieve this on current policy settings.
“If the deficit was to continue falling at the average rate expected beyond the end of this spending review, then it wouldn’t reach balance until 2030/31.
“And over this period there is also likely to be upward pressure on spending from the ageing of the population and other cost pressures from the health service.”
The stark assessment will prove a further blow for Mr Hammond who has already been hit with a gloomier economic outlook from the fiscal referee.
In its latest independent forecasts, the OBR revised down its predictions for gross domestic product (GDP) as the nation looks set to struggle with “stubbornly flat” productivity growth and weaker business investment.
It slashed GDP forecasts from 2% to 1.5% for this year,, while also cutting the outlook from 1.6% to 1.4% in 2018, from 1.7% to 1.3% in 2019, from 1.9% to 1.3% in 2020, and from 2% to 1.5% in 2021, before backing the economy to expand by 1.6% in 2022.
OBR committee member Sir Charlie Bean suggested the nation’s sluggish productivity growth could be persistent, with some economists taking the view that global productivity was returning to pre-industrial revolution levels.
However, he said productivity growth, which refers to the amount of work produced either per worker or per hour worked, had the potential to pick up pace as innovations – such as artificial intelligence and genetic engineering – feed through into industry.
He said: “There are good grounds for thinking that as the labour market gets tighter, and there are skills shortages … that forces firms to become more productive.”
On the public finances, the OBR has pencilled in Government borrowing to be £8.4 billion lower this year at £49.9 billion compared with its forecasts in the Spring Budget.
While it also revised down deficit predictions from £40.8 billion to £39.5 billion in 2018, the watchdog hiked its long-term forecasts.
It revised borrowing up from £21.4 billion to £34.7 billion in 2019, from £20.6 billion to £32.8 billion in 2020, and from £16.8 billion to £30.1 billion in 2021.
The OBR expects borrowing to sit at £25.6 billion in 2022.
Striking a positive note in his Budget speech, the Chancellor said the UK economy had managed to “confound those who seek to talk it down” by creating jobs and continuing to grow.
However, he said Government debt was still “too high” and must be reduced, saying it was wrong to “to spend more on our debt interest than we do on our police and our armed forces combined.”
Focusing on debt, the OBR expects it to peak at 86.5% of GDP this year, before falling to 86.4% in 2018, 86.1% in 2019, 83.1% in 2020, 79.3% in 2021, and 79.1% in 2022-23.
Responding to the Budget announcement, Labour leader Jeremy Corbyn said the Government was “missing their major targets, but the failed and damaging policy of austerity remains”.