Chancellor has ‘limited room' for tax giveaways in Autumn Statement, claims economic group
01 Dec 2014
Chancellor George Osborne will have little room for tax giveaways in Wednesday's Autumn Statement, according to economic forecasting group the EY Item Club.
Even though growth forecasts are like to be revised upwards, lower-than-expected tax receipts mean that the Chancellor will have "very limited room for manoeuvre" when it comes to headline-grabbing tax cuts as we approach the General Election in May.
The EY predicts that the Office for Budget Responsibility (OBR) is likely to increase its 2.7% GDP growth forecast for this year by 0.25-0.50%, given that the International Monetary Fund is predicting 3.2% growth this year, the Bank of England 3.5% and the CBI 3%.
However, the forecast for Public Sector Net Borrowing (PSNB) for the same period is also expected to be revised up by £8bn to £95bn. Combined revenues from income tax, national insurance contributions and capital gains tax are expected to fall almost £9bn short of the OBR's March forecast in 2014/15, meaning that the improvement in public finances is likely to stall and the EY predicts that the Chancellor will not deliver a surplus until a year later than he originally planned, in 2019/20.
Martin Beck, senior economic advisor to the EY Item Club, says: "In recent Autumn Statements, the chancellor has been able to trumpet a series of upward revisions to the OBR's growth forecast as evidence that his economic plan is working. This time, that's where the good news is likely to end.
"The improvement in the public finances is in danger of not just stalling but going into reverse. With just five months to go it appears virtually impossible for the government to achieve the OBR's current forecast for borrowing in 2014/15."