In a new report, the Institute for Fiscal Studies (IFS) has stated that Chancellor Philip Hammond may be required to abandon his target for eliminating the deficit if he is to increase spending on public services.
The government has stated its intention to move public finances into surplus by the mid-2020s, with the Treasury reaffirming its commitment to reducing the deficit ‘while also investing in our public services’.
According to the IFS, productivity growth is likely to be cut – meaning that the deficit could increase significantly, potentially rising to £36 billion by 2021/22.
In the report, the Institute said that it would be difficult to see how Mr Hammond could stick to his deficit reduction targets and also respond to the ‘growing demands for spending’.
Commenting on the matter, Mr Hammond recently said: ‘We’ve already moved the target for balancing the books out from 2020 to 2025, but continuing to drive down the deficit in a measured and sensible way over a period of years… has to be the right way to go.’
Carl Emmerson, Deputy Director of the IFS, stated: ‘Public sector workers, the NHS, the prison service, schools and working-age benefit recipients, among others, would like more money. Even if Mr Hammond does find some, unless it did represent a very big change of direction, it won’t mean ‘the end of austerity’.
‘Given all the current pressures and uncertainties – and the policy action that these might require – it is perhaps time to admit that a firm commitment to running a budget surplus from the mid-2020s onwards is no longer sensible.’
The Chancellor will deliver the Autumn Budget on Wednesday 22 November.