Britain’s national debt may not return to pre-financial crisis levels until “well past the 2060s”, on the basis of projections released with Wednesday’s Budget, a respected economic thinktank has warned.
And workers are facing two “lost decades” without earnings growth, the Institute for Fiscal Studies predicted in a bleak assessment of Chancellor Philip Hammond’s Budget.
Despite a £25 billion giveaway, the Budget did not mark the end of the “age of austerity”, said the IFS, pointing out that public services outside the NHS still face 7% cuts in day-to-day spending over the next five years.
“Grim” official forecasts from the Office for Budget Responsibility imply that GDP per head will be 3.5% lower in 2021 than was forecast less than two years ago, equating to a £65 billion hit to the economy, said IFS director Paul Johnson.
And average earnings in 2021 look set to be nearly £1,400 lower than forecast in March 2016 – lower in real terms than at the time of the financial crash in 2008.
“We are in danger of losing not just one but getting on for two decades of earnings growth,” said Mr Johnson.
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The OBR’s downgrade of growth forecasts for each of the next five years means Mr Hammond’s chances of hitting his target to balance the nation’s books by the middle of the 2020s look “remote”, said the IFS.
Wth nearly £12 billion of welfare cuts still to work their way through the system and day-to-day public spending due to be 3.6% lower in 2022/23 than it is now, “this is not the end of austerity, not by a long chalk”, said Mr Johnson.
“The figures published yesterday imply yet one more year of spending restraint,” he said. “As the years go by, the end of austerity keeps slipping out of view.”
Low GDP growth will impact on Britain’s ability to pay off its national debt, said Mr Johnson.
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The OBR’s decision to downgrade projected annual productivity growth from 1.7% to 1% was “as likely to be too optimistic as to be too pessimistic”, he said.
The UK is growing more slowly than all other advanced economies and projected to experience growth “well behind” all the other G7 countries over the coming years, with the OBR suggesting it will not top 1.6% for the next five years.
“It really is time to start forgetting that for decades anything less than 2% was considered seriously disappointing,” said Mr Johnson.
“The sorts of modest growth rates currently expected imply that, if we were to maintain the deficit at the just over 1% of national income projected for the early 2020s, it would take us until well past the 2060s for debt to fall to its pre-crisis levels of 40% of national income.
“That assumes no recessions for the next half century.”
The gloomy IFS assessment came as another thinktank, the Resolution Foundation, warned that living standards could face their biggest squeeze since records began in the 1950s and productivity growth is set to be the worst since the early 1800s.
The “truly catastrophic” cuts to the OBR forecasts for growth suggest the economy will be £42 billion smaller in 2022 than had been expected in March, the Foundation said.
Prime Minister Theresa May insisted Mr Hammond’s job was safe after what she termed a “very good” Budget.
The Prime Minister praised Mr Hammond during a visit to Leeds following reports in recent weeks that she might move the Chancellor in a Cabinet reshuffle.
Asked if Mr Hammond’s job was safe, Mrs May laughed and said: “Yes. The Chancellor did a very good job yesterday.”