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November 30, 2012 / politicsbitesize

Please Sir, can we implement a Plan B?

DeficitTo his credit George Osborne has held on to his Plan A deficit reduction plan with a firm grasp.  He couldn’t be sway by the many naysayers into thinking that maybe a redraft was needed and he even received positive encouragment for his plan from the International Monetary Fund in the summer of 2011.  Yet, as winter draws near and the Autumn Statement nearer there are renewed warnings that the Chancellor’s beloved Plan A could cause deeper fincancial difficulties for the UK.

Ahead of the Autumn Statement next week, it has been suggested that the Chancellor will have to announce further spending cuts and do away with his key austerity goal of reducing the budget deficit.   In her article for the New Statesman, Martha Gill highlights the fact that a sharp rise in public borrowing means the likelihood of the UK government hitting its deficit reduction target for this year is virtually none existent.

According to the Office for National Statistics (ONS) government borrowing reached £8.6bn in October 2012, which is up by £2.9bn on October 2011.  This signalled a warning from David Kern, chief economist at the British Chambers of Commerce, that ‘unless there are distinct improvements over the next few months, borrowing for the entire financial year could exceed the Office for Budget Responsibility’s budget forecast by around £15bn.’

On Monday, the Institute for Fiscal Studies (IFS) added to the voices warning that this growth in Government borrowing will lead to  Mr Osborne deciding that further spending cuts and tax rises will be needed.  The IFS deputy director Carl Emmerson warned that, ‘the planned era of austerity could run for eight years – from 2010-11 to 2017-18’, which could mean that the Chancellor will have to find a further £11bn of tax increases or welfare cuts on top of the planned £10bn announced a few weeks ago.

With household incomes already squeezed by these austerity measures another round of belt tightening might just choke off any growth in the economy before it has had a chance to flourish.  To this end the IFS recommends that instead of blindly following his plan to reduce the deficit at all costs, ‘The Chancellor would likely be best advised to abandon the rule and consult on replacing it with something that better ensures long-run sustainability rather than engage in significant further fiscal tightening in order to remain on course to comply with this target.’  Perhaps it is time for George Osborne to listen to those presenting him and the British economy with a Plan B.

 

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