THE highly-influential Institute for Fiscal Studies has spoken of the “danger” of two decades without earnings growth’ in response to yesterday’s Budget.
Before the Budget the IFS think tank described Chancellor Philip Hammond’s situation as being, “between a rock and a had place” needing to cut the deficit yet spend on infastructure and public services.
A day after Mr Hammond’s Budget Paul Johnson from the IFS says that Britain’s “forecasts for productivity, earnings and economic growth make pretty grim reading”.
Johnson adds hat GDP per capita will be 3.5% smaller in 2021 than forecast less than two years ago in March 2016.
In real terms amounts to a colossal loss of £65 billion to the economy with average earnings look like they will be nearly £1,400 a year lower than forecast back then, still below their 2008 level.
“We are in danger of losing not just one but getting on for two decades of earnings growth”, the IFS claim, adding that it could take Britain until well past 2060s for debt to fall to its pre-crisis levels of 40% of national income.
This startling turnaround for Britain assumes that there are no recessions for the next half century.
The IFS believe that Hammond’s promise to reduce Britain’s deficit from £35 billion to £25 billion by 2022–23 is “optimistic” even as it comes just two years after Mr Osborne’s promise of a £10 billion surplus by 2019–20.
Johnson says: “Yet this is not the end of ‘austerity’. Not by a long chalk. There are still nearly £12 billion of welfare cuts to work through the system, while day-to-day public service spending is still due to be 3.6% lower in 2022–23 than it is today.
“As the years go by the end of austerity keeps slipping out of view.”
The IFS claim that the reasons for the OBR’s downgrades are quite clear enough and can be understood with a single word – “productivity”.
According to Paul Johnson, “Productivity has consistently underperformed forecasts, and by a lot, over the past seven years. It is doing so again in 2017”.
Britain’s productivity, accoring to influential think tank, will not return to pre-2008 fiancial crisis levels any time soon.
In a comparison between Britain’s inepenendent forcasts and those for the other G7 economies coming from the IMF, the UK is at the back of the pack with, according to Johnson of the IFS, “only Canada even within touching distance”.
The immediate effects of this stuttering productivity and poor economic growth are already being felt in British households.
With people’s earnings actually falling and inflation having now risen to 3%, British people are feeling the effects in their daily lives.
Johnson says that forcasted earnings for many people will still be below their 2008 level by 2022, adding, “let’s hope this forecast turns out to be too pessimistic”.
Funding for the NHS is still suffering from a gradual slow-down according to the IFS with the increases in spending just over one percent in comparison to above 10 percent before the 2008 financial crisis.
Johnson finished his presentation on Britain’s vote to leave the European Union.
Describing Brexit as, “the B word”, Johnson asks where Brexit falls in Hammond’s 2017 Budget?
The think tank do however admit that, “the additional slow down in this year’s forecasts are not put down to Brexit”.
The IFS at this time is sticking to the “broad brush” assumptions of a year ago. Just to recap on what the OBR said a year ago. Those being that the Brexit vote would result in a £15 billion a year deterioration in the public finances.
This is not a view shared by economist Patrick Minford who wrote after Mr Hammond’s budget announcment yesterday that the Chancellor remains “ignorant and in denial” over the economic benefits of leaving the EU in his 2017 Budget announcement.
Mr Minford is the author of “A Budget for Brexit 2017” which lays out in detail just how the UK can benefit from a new future even with a formal EU trade deal said that, “the general sentiment within the Budget confirms our long-held concern that the Treasury is generally ignorant of and in denial about the wider economic benefits of Brexit.
After the presentation Johnson produced a chart demonstrating the tax cost on various alcoholic drinks in order to prove that after Mr Hammond’s 2017 Budget, “cider remains the most efficient route to oblivion”.