Osborne eyes strong deficit cuts in 2011-12

Julian Harris
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CHANCELLOR George Osborne’s deficit-curtailing efforts will come into focus tomorrow with the release of the government’s net borrowing requirement for April.

The figures will shed light on the start of Osborne’s first full fiscal year of major cuts. The deficit could be slashed to £115.6bn by the end of 2011-12, the Institute for Fiscal Studies has estimated.

The government deficit was reduced to £141.1bn in the fiscal year to March, from £156.4bn in Labour’s final year in power.

“The implementation of a large scale fiscal consolidation programme is not optional,” said Nomura’s UK economist Philip Rush.

“Structural damage to the public finances left them on an unsustainable trajectory. The public sector gorged on receipts related to the credit boom that are not coming back, regardless of how long politicians treat the financial sector as a giant piñata.”

Yet economists remain divided on the optimum speed of the cuts, and effect on the UK’s recovery.

“The plans for fiscal consolidation will inhibit economic growth but they will have had a limited effect on the data released so far,” said Simon Kirby of the National Institute of Economic and Business Research (NIESR).

“Removing most of the structural budget deficit over the course of this parliament is essential, but only when the economy could support it,” Kirby told City A.M.

“We certainly needed a credible plan, but there is no evidence the tax increases and spending cuts had to start so early.”

The deficit is hoped to fall to 7.9 per cent of GDP in this fiscal year, from its recent height of 11.1 per cent in 2009-10.

Nonetheless, the government’s net debt is expected to surpass 70 per cent of GDP in 2013-14.