IFS says households face living standards squeeze

The downgrading of George Osborne’s Budget economic forecasts has left households across Britain facing the prospect of falling wages and a squeeze on living standards, a leading economic thinktank has warned.

The Institute for Fiscal Studies ( IFS) said the deteriorating economic outlook meant the Chancellor had been forced to “pencil in” another year of austerity, with spending in the first year of the next parliament cut by £10 billion compared to previous plans.

In the Commons on Wednesday, Mr Osborne was forced to admit he would need tens of billions more in borrowing after the Office for Budget Responsibility (OBR) said growth would be lower than expected.

However at the IFS’s postBudget briefing, director Paul Johnson said that the effects of the downgrade would extend beyond the public finances.

“That loss largely arises from changes in assumptions about future productivity growth leading in to lower economic growth over the rest of parliament,” he said.

“If the OBR is right about that, we should all be worried. This will lead to lower wages and living standards, not just lower tax revenues for the Treasury.”

Mr Johnson said the Chancellor was paying the price for having made too much of the £27bn which the OBR had “found down the back of the sofa” at the time of the Autumn Statement in November, when upward revision forecasts meant he was able to cancel planned cuts to tax credits.

The latest changes amounted to a £56bn “loss” to the Exchequer – leaving him with a net loss of £29bn.

Mr Johnson warned the Chancellor was now “running out of wriggle room” if he was to meet his self-imposed target of delivering a budget surplus by the time of the next general election in 2020.

He said that the risks were exacerbated by the fact that despite the worsening situation Mr Osborne had still given away £8bn in tax cuts in the Budget. “His chances of him having a surplus in 2019-20 are only just the right side of 50-50,” he said.