November 26, 2012 / 12:13 AM / 5 years ago

UK may face deeper government spending cuts - IFS

LONDON (Reuters) - Chancellor George Osborne may have to announce more spending cuts and tear up one of his key austerity goals next month, the Institute for Fiscal Studies said on Monday, warning government borrowing was likely to rise this year.

Osborne, who updates parliament with the latest official borrowing and growth forecasts on December 5, has struggled to keep his austerity targets on track because of the economic malaise.

The Conservative has already extended the planned period of spending cuts by two years, well beyond the next election in 2015, and warned of further cuts to welfare spending.

Poor economic performance since the March budget means more bad news could be on the way next month, including the embarrassment of higher borrowing this year compared to last.

“Since the budget, the outlook for the UK economy has deteriorated and government receipts have disappointed by even more than this year’s weak growth would normally suggest,” said IFS deputy director Carl Emmerson.

“The planned era of austerity could run for eight years - from 2010-11 to 2017-18.”

The IFS estimates that Osborne may have to find a further 11 billion pounds of tax increases or welfare cuts for that post-election period, in addition to extrapolating the same squeeze on public spending already planned and the extra welfare cuts already announced.

If the trend for the public finances seen so far this year were to continue, the IFS said, borrowing would come in at 133 billion pounds for the year ending March 2013 - 13 billion above the Office for Budget Responsibility’s forecasts in March.

“This would mean that underlying borrowing rose between 2011-12 and 2012-13 rather than fell as the Chancellor George Osborne had intended,” the IFS said.

Rising borrowing would prove a blow for the Conservatives who promised to all but eliminate a record budget deficit by the time of the 2015 election and to get Britain’s public sector net debt falling as a percentage of national output by 2015/16.

The IFS said Osborne, whose official title is Chancellor of the Exchequer, may have to scrap the latter target.

“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,” it said.

Editing by Greg Mahlich

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