Everyone should be worried about jobs and wages as gloom grows, experts warn

Chancellor faces £29bn black hole in public finances from slower growth, says think-tank

VOTERS should “all be worried” about the risk of job cuts and lower wages amid mounting concern over another economic downturn, the Institute for Fiscal Studies has warned.

The respected think-tank said that George Osborne “won’t be able to sleep at night” after official forecasts suggested he has only a “50-50” chance of meeting his target to balance the books by 2020.

It suggested that the Chancellor has lost £29 billion “down the back of the sofa” after the Office for Budget Responsibility (OBR) warned that the economy would grow by less than previously expected over the next five years.

The IFS said that Mr Osborne would have to find “genuinely big” tax rises or spending cuts if there was any further downgrade in the public finances, in order to meet his “economically irrelevant” target of running a Budget surplus.

It also revealed that Britain would face another year of austerity in 202021, saying the Chancellor had been forced by the deteriorating outlook to “pencil in” spending in the first year of the next parliament that would be down by £10 billion compared with his previous plans.

Paul Johnson, the head of the IFS, accused Mr Osborne of “shuffling money around” in an attempt to meet his target, with the bulk of cuts falling in 2019 and 2020.

He said: “If the OBR is right about that [lower economic growth] we should all be worried. This will lead to lower wages and living standards, not just lower tax revenues for the Treasury.

“In the longer term the public finances are kept on track only by adding yet another year of austerity on the spending side.”

The IFS added that Mr Osborne would be able to abandon his rule of achieving a Budget surplus in 2019-20 if the economy deteriorated badly enough.

The Chancellor indicated yesterday that he was prepared to drop the drive for a surplus in the event of a recession, saying that his rule only applies in “normal” times.

“There is a commitment to reach a budget surplus in normal times,” he told BBC Radio 4’s Today programme.

“I’m saying, if the economy is growing, if your economy is performing, you should be making sure you don’t spend more than you raise in taxes and you should be putting aside money to reduce debt.

“Obviously, if you are in a much worse situation, if you are in a recession for example – and we’re not at all in that today, our economy is growing and unemployment is falling – but if you are in a recession then you have to alter your plans.”

Mr Osborne also faced a Eurosceptic backlash after using his Budget to warn against the risk of leaving the European Union.

The Chancellor said in his speech in the Commons on Wednesday that the OBR had warned of the “negative implication” of a so-called Brexit for the economy.

Robert Chote, chairman of the OBR, said that “no one” should quote the organisation as an expert on the question of leaving the European Union because it had not made a judgment on the issue.

He said: “We cited what other people have been saying [on] that but we’ve made no explicit judgements.”