Britain's economic slowdown means that public finances will be £25bn worse off than previously thought and still in deficit by 2019.
Lower growth forecasts mean Philip Hammond can expect to be nursing a Treasury deficit of £15bn, compared with the £10bn surplus George Osborne predicted in the Budget earlier this year, according to the Institute for Fiscal Studies (IFS).
Experts are anticipating that the Office for Budget Responsibility will revise growth forecasts down alongside Hammond’s Autumn Statement later this month.
The IFS said that a stuttering economy means that tax receipts will be £31bn lower, offset by an assumed £6bn saving from not paying into the EU budget.
John Hawksworth, PwC’s chief economist, agreed with the IFS findings and added that the news came “before there has been any serious economic impact from Brexit”.
Notwithstanding Hammond’s ability to distance himself from Osborne’s fiscal restraints, one analyst underlined the point that UK plc was not going to generate enough tax revenues to bolster Treasury coffers.
“While the abolition of the previous chancellor’s fiscal rules provides some leeway, it is the erosion of the tax base that will be of more concern for those seeking a balanced budget and a reduction in the national debt,’ said Panmure Gordon’s chief economist Simon French.
“The IFS report makes for sobering reading for anyone expecting a giveaway Autumn Statement from chancellor Hammond,” French concluded.
The news that running a budget surplus will likely be further pushed back strengthened the case for the chancellor to be flexible according to IHS Markit chief economist Howard Archer.
“With the major uncertainties surrounding Brexit and the economic outlook, there would seem to be little to be gained and potentially a lot of credibility to be lost from adopting a rigid targets that could quickly look unattainable,” he said.
Meanwhile French concluded “tough decisions” were ahead for the government.
“Even without Brexit the structural deficit remains a problem as the expenditure on an ageing population continues to grow faster than the wider economy,” he said.