UK Budget reveals upcoming challenges

Brexit looms large over government’s fiscal decisions, says LBS expert

 

The government’s fiscal targets will become all the more challenging to reach based on this year’s Spring Budget, according to a London Business School economist.

Commenting in Forbes, Linda Yueh, Adjunct Professor of Economics, London Business School says that, although economic growth has been revised upwards to 2%, the long-term picture hasn’t changed.

“The revision to growth was accompanied by a reduction in the estimated budget deficit. But, government debt as a share of GDP is still forecast by the independent Office for Budget Responsibility (OBR) to peak next year, albeit at just under 89% of GDP instead of 90%,” says Yueh.

“The OBR also stresses that the budget deficit remains largely "structural", so revisions to economic growth won't really change the underlying budget position. The Chancellor recognises that and proposed a budget where additional spending is met by tax increases for the self-employed and directors of companies, for example.”

More worrying, Yueh observes, is the fact that the OBR doesn't believe that the government looks on track to return public finances – in other words, the structural deficit isn't likely to fall to 2% of GDP by 2021.

“The need for greater social spending is pushing against public spending cuts, which will make the government’s fiscal targets more challenging to reach,” concludes Yueh.