Budget is a gamble, warns top think tank

TAX rises are ‘all but inevitable’ after Philip Hammond took a ‘gamble’ with public finances, a major economic think tank warned yesterday.

The Institute for Fiscal Studies said the Chancellor may have ‘painted himself into a corner’ by using a windfall from revised borrowing forecasts to fund increased spending on the NHS.

If borrowing forecasts change, this could lead to drastically higher rates of borrowing and debt, it said.

The think-tank said that any expectation Mr Hammond had of meeting his target to eliminate the deficit by the mid-2020s was now ‘for the birds’.

It said that on some measures, Mr Hammond was right to claim austerity was coming to an end.

But its director, Paul Johnson, said: ‘When push comes to shove, it’s not tax rises and it’s not the NHS that Mr Hammond is willing to gamble on, it’s the public finances.

‘The Budget was a bit of a gamble. Yes, the Office for Budget Responsibility reduced borrowing forecasts so he was able to find more money without committing to more borrowing. But what the OBR gives the OBR can take away.

‘Suppose the public finance forecasts deteriorate significantly next year? They might. There’s perhaps a one in three chance of that. What will he do then?’

If the OBR downgrades forecasts in the coming years, Mr Hammond will have ‘have painted himself into a bit of a corner’, said Mr Johnson.

‘He’s going to struggle to reimpose austerity having announced its end. Could he resort to sizeable tax rises? More likely he would just allow borrowing to persist at a higher level.’

The IFS director described tax changes introduced by the Chancellor – including a digital service tax on online giants and a cut in business rates for small retailers – as ‘a shortterm sticking plaster solution to some big underlying problems’.

‘There was no indication of a plan for future tax policy or for the all but inevitable tax increases to pay for our ageing population,’ he said.

Mr Johnson added that, even after the injection of around £2billion a year into Universal Credit, there would be ‘millions of losers’ from the introduction of the new benefit.

The move to reverse previous cuts to UC was ‘a small increase in generosity compared to the cuts to working age benefits introduced since 2015 and small relative to cuts still to come’, said Mr Johnson.

As UC is rolled out, around a third of claimants will end up £1,000 or more worse-off and a third at least £1,000 a year better-off.

Mr Johnson also warned that the Chancellor may be unable to provide a big spending bonus to departments even if he gets the kind of Brexit deal he wants.

Mr Hammond believes the OBR will upgrade economic forecasts once a deal is done. But Mr Johnson said this was ‘far from certain’.

‘The OBR forecasts, to the extent it’s clear what they are predicated on, are based on a smooth Brexit and do not build into them the chance of no deal,’ he said.

‘If you ask macro-forecasters in the City, there are some who nevertheless think you might get some boost as uncertainty unwinds.

‘I don’t know if we will or won’t, but it is far from certain.’

‘Painted himself into a corner’