Raymond Doherty 23 Nov 2017 04:51pm

Budget: Austerity not close to ending, says IFS

The idea of steadily rising living standards may be a thing of the distant past, the Institute for Fiscal Studies (IFS) has warned
Caption: National debt may not return to pre-financial crisis levels until past the 2060s

The think-tank has said that the gloomy economic forecast revealed in yesterday’s Budget means that the UK is in danger of losing two decades of earnings growth.

“On the new forecasts, real earnings growth will be almost non-existent for the next two years, and horribly weak thereafter,” said IFS director Paul Johnson.

Find all the news, analysis, video and comment on the Budget here

The IFS said that despite some giveaways – such as extra funding to the NHS – this was not close to the end of “austerity”.

“Not by a long chalk. There are still nearly £12bn of welfare cuts to work through the system, while day-to-day public service spending is still due to be 3.6% lower in 2022–23 than it is today,” said Johnson.

In its post-Budget analysis the IFS also predicted that Britain’s national debt may not return to pre-financial crisis levels until “well past the 2060s.”

See our pre-Budget interview with Johnson here

“It really is time to start forgetting that for decades anything less than 2% was considered seriously disappointing,” said 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.”

On Brexit, the IFS said that it had no reason change the OBR's forecast of a year ago, which was accepted by government, that Brexit would result in a £15bn a year deterioration in the public finances. "They have not changed that judgment. The additional slow down in this year’s forecasts are not put down to Brexit," said the IFS.

Yesterday, chancellor Philip Hammond made housing central to his Budget by scrapping stamp duty for first time buyers, however the overall UK economic outlook worsened. He also set aside £3bn to prepare for all Brexit scenarios.

The figures made for grim reading, especially compared to G7 competitors. The Office for Budget Responsibility (OBR) reduced its GDP forecast this year to 1.5% from 2%. Next year, the economy is expected to grow by 1.4%, against the previously expected 1.6%.

While 2019 and 2020, the GDP is forecast 1.3% against the previous estimate of 1.7% and 1.9% respectively.

The OBR expects productivity to remain flat in 2017, before increasing 0.9% in 2018 and 1.0% in 2019. It will then increase to 1.3% in later years. In the Spring Budget this year, the forecast was of 1.7% on average.