The government’s plan to cut taxes for households and businesses means the Treasury will continue to borrow around £100 billion ($114 billion) a year through mid-2020, at least £60 billion ($67,862). higher than currently projected, the influential think tank said in an analysis on Wednesday. This will keep debt rising as a share of GDP.
The warning comes ahead of a mini budget on Friday in which chancellor quasi Kwarteng reverses a payroll tax increase that went into effect in April and stoked a corporate tax increase at a cost to the exchequer of nearly £30bn. Both were promises made by Truss during his campaign to succeed Boris Johnson.
“The government is choosing to increase borrowing when it becomes more expensive to do so, in a bid to develop developments that cannot pay,” said the IFS deputy director. Karl Emersonwho helped write the report.
“Under our forecasts the increase in annual growth required to stabilize debt as a fraction of national income would be equal to the difference in growth seen in the quarter century between the financial crisis of 1983 and 2008 and that seen in the decade It was 2010. “, he added. “Achieving that scale of growth in trend growth, while not impossible, will require a lot of luck or a tangible change in policy direction over the long term.”
The prospect of issuing more debt, combined with concerns about inflation, has led UK government bonds to underperform their peers lately. Investors are seeking a yield of 3.32% for the 10-year gilt holding, which is around an 11-year high.
The tax revenue loss will persist beyond October 2024, when government subsidies to control energy bills are due to expire. Under the existing plans, the IFS said, the government would not follow the fiscal rules set by Quarteng’s predecessor Rishi Sunak. Those goals require debt decline and daily spending and income to remain in balance as part of national income over three years.
While the electricity price guarantee is temporary, the scale of the support (over £100bn over two years) will significantly increase short-term borrowing.
In a note on Wednesday, Barclays economists said the budget deficit is likely to reach 9.4% of GDP in the fiscal year beginning in April, with net debt above 100% for the first time, five times the level in the spring. officials had predicted. , time in more than 60 years.