National debt will not fall to pre-crisis levels until the 2060s
‘I’ll be dead by then,’ jokes head of the IFS as think tank also forecasts two lost decades of earnings growth
BRITAIN’S economic growth is so sluggish that it will take until the 2060s for the nation’s debt to fall to the prefinancial crisis levels of 2008, the Institute for Fiscal Studies has warned.
Paul Johnson, the head of the IFS, said that it will take at least four decades for the nation’s debt to return to 40 per cent of national income. “I’ll be dead,” Mr Johnson added.
The think tank said official forecasts make for “pretty grim reading” and warned that British workers are facing two “lost decades” without earnings growth.
The IFS also warned that despite a £25 billion giveaway, the Budget did not mark the end of the “age of austerity”, with public services outside the NHS facing cuts of 6 per cent in day-today spending over the next five years.
Official forecasts suggest that economic growth will be 3.5 per cent lower in 2021 than was forecast less than two years ago, equating to a £65billion hit.
The IFS said that productivity had “consistently underperformed forecasts, and by a lot”, causing the UK to be the slowest growing of any of the G7 group of advanced economies.
It said that the fact wages are unlikely to return to 2008 levels by 2022 is “truly astonishing”, and that the chances of Mr Hammond balancing the book by the mid-2020s are “remote”.
Average earnings in 2021 look set to be nearly £1,400 lower than forecast in March 2016 – lower in real terms than at the time of the financial crash in 2008.
“We are in danger of losing not just one but getting on for two decades of earnings growth,” Mr Johnson said.
The Office for Budget Responsibility’s downgrade of growth forecasts for each of the next five years means Mr Hammond’s chances of hitting his target to balance the nation’s books by the middle of the 2020s look “remote”, said the IFS. Further cuts or tax rises worth £20billion would be needed to balance the books on time by 2025.
With nearly £12 billion of welfare cuts still to work their way through the system and day-to-day public spending due to be 3.6 per cent lower in 2022/23 than it is now, “this is not the end of austerity, not by a long chalk”, said Mr Johnson.
“The figures published yesterday imply yet one more year of spending
restraint,” he said. “As the years go by, the end of austerity keeps slipping out of view.”
Mr Johnson said: “The sorts of modest growth rates currently expected imply that, if we were to maintain the deficit at the just over 1 per cent of national income projected for the early 2020s, it would take us until well past the 2060s for debt to fall to its pre-crisis levels of 40 per cent of national income. That assumes no recessions for the next half century.”
The gloomy IFS assessment came as another think tank, the Resolution Foundation, warned that living standards could face their biggest squeeze since records began in the 1950s, and productivity growth is set to be the worst since the early 1800s.
The “truly catastrophic” cuts to the OBR forecasts for growth suggest the economy will be £42billion smaller in 2022 than had been expected in March, the Foundation said.
On Brexit, the IFS highlighted the fact that the OBR was only able to make “broad brush” assumptions because the UK’S future relationship with the EU is unclear. “Despite all the gloom we can hope for better, though we may still fear for worse,” Mr Johnson said.
The Resolution Foundation said that on a rolling 10-year measure, productivity
‘This is the worst decade for productivity growth since 1812 – when Napoleon was invading Russia’
growth is expected to fall to 0.1 per cent by the end of this year, marking this as the worst decade for productivity growth since 1812 – when Napoleon was invading Russia.
The future for family finances is “unremittingly grim” with pay forecast to be £1,000 a year lower on average than the OBR thought in March.
The Resolution Foundation expects that pay rates will not reach the levels seen before the 2008 financial crash until 2025.
The “living standards disaster” will see disposable income £540 lower than previously expected by 2022 “with the current fall in real incomes set to continue and to become the longest on record”. Torsten Bell, director of the Foundation, said: “Yesterday the OBR handed down the mother of all economic downgrades pushing up borrowing for the Treasury.
“While Philip Hammond chose to take a relaxed approach to additional borrowing, families are unlikely to do so when it comes to the deeply troubling outlook for their living standards that the Budget numbers set out.
“Families are now projected to be in the early stages of the longest period of continuous falls in disposable incomes in over 60 years – longer even than that following the financial crisis.”