Despite continuing cuts to public services, the UK’s tax burden will rise to its highest level in 30 years. The forecast comes from the Green Budget 2017, published today by the Institute for Fiscal Studies.
The pain of austerity will be felt for much longer than previously anticipated. Hammond’s decision to push back the date for balancing the nation’s books will take austerity into the second decade.
The Institute for Fiscal Studies said further spending cuts and tax increases of as much as 34 billion pounds could be required to balance the budget deficit.
Soft Brexit will still cost over transition period
Even a soft Brexit with a lengthy transition period of free trade with the EU will still cost. The IFS forecast that the UK’s economy is likely to be 3% smaller by 2030 than if it had voted to remain in the EU.
A weaker pound and higher inflation will impact public finances further
The UK economy has shown stronger than expected resilience since June’s Brexit referendum. However, a weaker pound is pushing up inflation, dimming the outlook for growth over the coming two years, according to Oxford Economics. Official forecasts suggest that Brexit will further negatively impact public finances in coming years.
Fiscal rules consigned to the dustbin
“The new chancellor may not find it all that easy to meet his target of eliminating the budget deficit in the next parliament. If the economy does less well than hoped we may see yet another set of fiscal rules consigned to the dustbin,” said IFS Director Paul Johnson.
Philip Hammond’s odds not looking good
Hammond is seeking to reduce the structural deficit to no more than 2 percent of national income in 2020–2021. Far less ambitious than George Osborne’s goal of balancing the books by the end of the decade. However, the IFS estimates he has a one-in-three chance of missing his goal.
The IFS also warned about pressure on health and social care spending. They said there would be greater risks facing public finances, as services come under pressure from a growing and ageing population.
Increased consumer spending unlikely to last
Spending power set to come under significant pressure from higher inflation and the welfare squeeze. The consumer will not be able to keep contributing more than its fair share. Should we fail to secure a free-trade agreement then the outcome is likely to be worse still.”, said Oxford Economics UK economist Andrew Good.
Tax, Austerity and the impact of Brexit may force many skilled Britons to look at their options abroad
Young UK professionals worry about housing affordability and the prospect of ever jumping on the property ladder. A future of anaemic economic growth, larger tax bills and declining public services won’t help. Many may be persuaded to seek their future outside of the UK.
Some EU states may be ready to capitalise on that and are already considering offering EU citizenship to British expats.