IMF forecast blows hole in George Osborne’s deficit reduction plan

Gloomy view on UK economy says government spending on welfare may need to be higher than Treasury plans, while lower tax receipts will undermine growth

Britain’s next government will face a tougher time than expected reducing Whitehall’s annual spending deficit, according to the International Monetary Fund, which said lower tax receipts and uncertainty surrounding the election would undermine growth forecasts.

The Washington-based organisation said the current prediction of a £7bn surplus in the last year of the next parliament would instead be a £7bn deficit. The forecast blows a hole in George Osborne’s hopes that keeping to strict public spending limits for the next five years will deliver a surplus.

The Office for Budget Responsibility, which uses Treasury figures to make its forecasts of the public finances, says the UK is due to reach a surplus by 2019 under current plans.

But the IMF warned that its officials took a gloomier view of the UK’s growth prospects over the next five years. Government spending may also need to be higher on welfare and tax credits than predicted by the OBR while the country gets back on track.

“On the expenditure side, given uncertainties pertaining to the May elections, a slightly slower pace of consolidation than that in the [2015] budget is assumed for 2015/16 and beyond,” it said.

Earlier this week the IMF warned that the UK’s stellar growth was due to slow from 2.7% this year to 2.3% in 2016. A judgment on the likelihood of a messy outcome to the election was behind that forecast, which it said would have knock-on effects for several years to come.

The warning came as the IMF urged developed nations to capitalise on low oil prices by raising energy taxes and using the windfall to cut income taxes.

It said the collapse in the oil price since last summer provided a chance to shift the burden of tax away from wages to help poorer workers left behind in the recovery.

In its six-monthly monitor of government finances across member countries, the IMF said finance ministers should “seize the opportunity created by falling oil prices” to support initiatives that combat climate change and “provide breathing room for rebalancing the tax burden, for example, by lowering taxes on labour to boost employment”.

In addition, developing economies should reduce energy subsidies that keep the cost of petrol artificially low “to provide space for productive spending on education, health and infrastructure, as well as for programmes to benefit the poor”, the report said.

More at

http://www.theguardian.com/business/2015/apr/15/imf-forecast-uk-george-osborne-deficit-reduction-growth-fuel-tax


Carried by the Telegraph and Times as well.

you convenientlyforget to include the part where it says none of the parties are likely to achieve a surplus....

None of the other parties are saying they could make a surplus lol