Weaker than expected tax revenue has caused public borrowing figures to exceed the Office for Budget Responsibility’s expectations, the financial services giant said, and slower than expected trend growth could cause this borrowing gap to widen in the future.
Bridging the gap would require additional spending cuts or tax increases of around one per cent of GDP by 2018, PwC estimated, about £16bn at current value.
But chief economist John Hawksworth at PwC said that given the fragile state of the economy, the chancellor should not immediately impose more austerity measures. In fact PwC called on Osborne to use the Autumn Statement to boost infrastructure spending in areas such as road maintenance to help support the struggling construction sector.
“So long as this extra spending is more than offset by cuts in recurrent spending in later years, it should not prevent the chancellor from meeting his medium term fiscal targets,” Hawksworth said. “This will, however, eventually require some further painful fiscal medicine once the economic recovery is secure.”