U.K. Parties Given Little Chance of Achieving New Fiscal Rules
U.K. Parties Given Little Chance of Achieving New Fiscal Rules
(Bloomberg) -- U.K. Chancellor Sajid Javid and his opposition rival John McDonnell are on course to break the fiscal rules they announced less than a month ago, new research claims.
Even a tiny downgrade to the economic outlook could force a Tory government to raise taxes, return to austerity or abandon its new rules, the London-based think tank said. A Labour government would find itself in a similar position and have to row back on several big manifesto commitments.
The Conservatives’ projected 5 billion-pound ($6.5 billion) current budget surplus in 2023 would probably be wiped out by extra spending on debt interest and depreciation -- the result of increased capital investment -- and by their tax-cutting ambition to raise the threshold for paying National Insurance.
Labour’s 6 billion pounds of headroom against its balanced-budget goal in 2025, meanwhile, fails to account for its pledge to compensate women born in the 1950s who lost out as a result of changes to the state pension age.
That commitment alone could cost 12 billion pounds a year. Its capital spending plans -- the biggest of any political party -- would add 10 billion pounds to debt interest and depreciation.
“After a decade of austerity, the desire of politicians to move on and invest in our economy is understandable,” said James Smith, research director at the Resolution Foundation. “But taking huge risks with the brand new fiscal rules that are supposed to bind the next government for its whole time in office risks seriously undermining the U.K.’s economic credibility, at a time when it is already under strain.”
To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss
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