প্রকাশ: 11/10/2022
British finance
minister Kwasi Kwarteng needs to make 62 billion pounds ($69 billion) of
spending cuts or tax rises to stop public debt growing ever-larger as a share
of the economy, the Institute for Fiscal Studies (IFS) said in a report on
Tuesday.
Interest rates for new long-term government borrowing leapt
to a 20-year high last month, after Kwarteng announced 45 billion pounds of
unfunded tax cuts, on top of even greater short-term support for households'
and businesses' energy bills.
Kwarteng has sought to regain market confidence by scrapping
a plan to axe Britain's top rate of income tax - saving 2 billion pounds - and
bringing forward plans for new forecasts and a debt reduction plan to Oct. 31.
But the IFS think tank - whose views on budget policy are
closely watched in Britain - said Kwarteng would face an uphill struggle to
convince sceptical markets that his plans will boost growth to 2.5% a year
promised by Prime Minister Liz Truss.
"The Chancellor should not rely on over-optimistic
growth forecasts or promises of unspecified spending cuts. To do so would risk
his plans lacking the credibility which recent events have shown to be so
important," IFS director Paul Johnson said.
British government borrowing looks on course to hit 194
billion pounds this financial year and to still be 103 billion pounds in
2026/27 - 71 billion more than government forecasters predicted in March, the
IFS said.
The IFS budget projections are based on relatively downbeat
growth forecasts from US bank Citi, which estimates that the British
economy will grow by an average of just 0.8% a year over the next five years.
However, even if the economy grew a quarter of a percent
faster each year, the government would still need to tighten fiscal policy by
41 billion pounds for debt to fall as a share of gross domestic product (GDP),
the IFS said.
Costly debt
Debt interest would cost 106 billion pounds this year and
103 billion pounds in 2023/24, the IFS predicted, due to the large amount of
finance raised in years gone by through issuing bonds that pay interest that
rises as inflation goes up.
Citi economist Ben Nabarro, who presented the forecasts
alongside the IFS, said Britain's large current account deficit made it
vulnerable to a loss of confidence.
"The funding basis for that is increasingly
precarious," he said. "Institutional credibility is an absolute must
for the UK and any doubts about that risk being hugely destructive."
Sterling fell to a record low below $1.04 against the U.S.
dollar on Sept. 26, and many British government bonds recorded their biggest
monthly falls on record.
Debt rising as a share of GDP was acceptable during economic
crises - such as those caused by COVID-19 or the recent surge in energy prices
- but was not sustainable long term, the IFS said.
"There are constraints that can bite. And it looks as
if we are running up against them, perhaps for the first time in a long
time," the IFS said.
If Kwarteng was unwilling to raise taxes, the IFS said one
way to achieve 62 billion pounds of cuts would be to raise working-age benefits
in line with wages, not prices, for the next two years; to limit public
investment to 2% of GDP rather than 3%; and to cut spending on public services
outside health and defence by 15%.
"Such spending cuts could be done, but would be far
from easy," the IFS said.
- Reuters
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