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Budget: Hammond faces spending dilemma, says IFS

Budget: Hammond faces spending dilemma, says IFS
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Philip Hammond may have to abandon his target for getting rid of the deficit if he wants to increase spending on public services, the Institute for Fiscal Studies said.

He is also facing a likely cut in the forecast for productivity growth, and uncertainty around Brexit, it said.

The Treasury said it would continue to adopt a "balanced approach".

Mr Hammond is to unveil his Budget on 22 November - the first since the general election.

He has said he aims to eliminate the budget deficit - the difference between the government s everyday spending and the money it has coming in - by the middle of the next decade.

He told the BBC last week: "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."

But the IFS says Mr Hammond is also under "increasingly intense" political pressure to spend more, while the Parliamentary arithmetic makes tax increases look difficult.

The chancellor has been dealt a "very tricky hand indeed", it says.

"Does he allow higher borrowing to persist, does he add to that with more spending, or does he try to offset that with greater taxes?" said IFS deputy director Carl Emmerson.

"Public sector workers, the NHS, the prison service, schools and working-age benefit recipients, among others, would like more money.

"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 deficit is likely to increase significantly if the Office for Budget Responsibility cuts its prediction for productivity growth of 1.6% a year in the face of the sluggish performance of the UK economy.

If the OBR reduces its forecast to 1%, the IFS said, the deficit would more than double to almost £36bn by 2021-22.

The projected deficit could be as much as £70bn if the OBR decides that productivity growth is closer to the 0.4% recorded over the past seven years, it said.
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