UK chancellor Rishi Sunak has deferred a decision over changes to Britain’s spending rules, saying he will consult experts and report back in the autumn.
The decision came as the chancellor announced the UK budget deficit would rise to 2.4 per cent of GDP in the 2020-21 financial year, up from 2.1 per cent this year, according to Office for Budget Responsibility (OBR) forecasts.
The UK’s watchdog had originally forecast the deficit would fall to 1.8 per cent of GDP by 2020-21. But a major fiscal stimulus to tackle the coronavirus outbreak and increased spending on public services will take borrowing higher.
Javid, who was replaced by Sunak as chancellor just last month, laid out rules in the General Election that would make the government balance day-to-day spending in three years’ time.
Sunak today said he was still debating whether to loosen the rule, which would help the government “level up” spending across the country.
“There is a live global debate about what our low interest rate environment means for fiscal strategy,” he said.
“I want to take time to consider these questions over the coming months.” Sunak said he will review the fiscal framework and report back in the autumn, when another Budget is scheduled.
Sunak said the OBR had forecasted that the budget deficit would rise significantly to 2.8 per cent in 2021-22, compared to an original prediction of 1.6 per cent. He said it would then fall gradually to 2.2 per cent by 2024-25.
It comes four years after then-chancellor George Osborne said the Tories would by this year turn the deficit – the shortfall between spending and tax income – into a surplus.
Sunak revealed that the OBR has downgraded productivity and GDP growth forecasts for this year compared to predictions it made in March last year. This reflects stagnating business investment and a global slowdown.