Stubborn deficit threatens tax hikes from 2016

Julian Harris
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THE GOVERNMENT remains off track to hit its deficit targets by 2015-16, economists said yesterday, while the Labour Party used the spending review to round on the coalition’s record.

Recent economic data has been rosier than expected for the UK. But despite this, and scheduled cuts to departmental spending, the government’s borrowing is now forecast to be even higher than had been expected.

The Office for Budget Responsibility (OBR) estimated in March that public sector net borrowing, known as PSNB, would still be £87bn in 2015-16.

But analysts at the Centre for Economics and Business Research (CEBR) told City A.M. they expect the number to come in at £102.6bn.

“We expect that public borrowing in 2015-16 will be over £15bn higher than the OBR expects,” the CEBR’s Katie Evans said. “While today’s cuts will clearly have important implications for individual departments, the pace of deficit reduction is still too slow to meet current targets. More difficult decisions await the next government.”

Earlier in the day the Institute for Fiscal Studies said that people should be braced for tough measures from 2016-18. “If I was a betting man, I would think there would be some kind of tax rises after the election,” its director Paul Johnson told the BBC.

Labour’s shadow chancellor Ed Balls hit out at the coalition’s spending review. “For all the Budget boasts, borrowing last year was not down, but up. [The chancellor is] not balancing the books as he promised,” Balls said.