TWO major pitfalls threaten the credibility of George Osborne’s new fiscal mandate and debt target, the Institute for Fiscal Studies said yesterday, although it gave both a cautious welcome.
While it applauded the forward-looking nature of the mandate to achieve a balanced structural current budget by the end of the forecast horizon, it warned that it was all too easy for a chancellor to pencil in an extra year of fiscal squeeze in the last year to ensure the target was met.
However, the IFS welcomed the Budget’s announcement that the
forecast horizon would shorten in the future. Nonetheless, it warned that the mandate should not become too short-term otherwise it would lose credibility.
Gemma Tetlow, senior research economist at the think-tank, said that the debt target was not a sufficiently constraining fiscal rule in the longer term and added that if the fiscal mandate is met then the debt target is also likely to be achieved.
But Osborne plans to announce a debt target “once the exceptional rise in debt has been addressed”.