Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says Yes.
The Office for Budget Responsibility (OBR) will revise up its borrowing forecasts in this week’s Autumn Statement, and the surplus predicted for 2019-20 probably will be reduced to just £5bn from £10bn. But even after these revisions, it is doubtful that borrowing will fall as swiftly as the OBR thinks.
Government departments will struggle to implement deep spending cuts that follow several years of reductions.
In addition, the projections will assume that the government’s borrowing costs rise only gradually. If the Bank of England’s Monetary Policy Committee starts raising interest rates next year, the interest bill will rise faster than the OBR expects.
The fiscal plans also expect revenues from tax avoidance measures to be plentiful and don’t include the cost of the Conservatives, pre-election income tax pledges. The most likely outcome, then, is that the chancellor allows the borrowing numbers to slip further – as he has before – even if that means breaking his self-imposed rule.
David Kern, chief economist at the British Chambers of Commerce, says No.
We believe the chancellor’s strategy for cutting the deficit and achieving a surplus by 2020 is achievable, but it’s going to be tough. We’ve always stressed that the UK is facing huge challenges.
This will require big efforts to eliminate the deficit by the end of this Parliament. While the October figures are disappointing, monthly figures can be volatile.
The government has made reasonable progress in the first half of this financial year towards the five-year goal, even if so far the pace of deficit reduction is slower than the chancellor’s shorter-term aspiration for 2015-16.
If the UK pursues a dual strategy – cutting current spending and supporting businesses to generate growth through exports and access to finance – then the government can succeed.
But we need to improve our ability to generate sufficient tax receipts. And it’s not the end of the world if it takes a little more time for the government to eliminate the deficit. The most important thing is that we have a healthy, sustainable economy in the medium term.