Sunday, January 16, 2022

Pulling GDP growth back to previous levels would eliminate the deficit in five years

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The Chancellor is accused of giving short-term budgetary discipline priority over overall economic growth

With GDP growth currently forecast at 1.6 per cent per annum, the Treasury will still be borrowing £44bn annually through 2026/27. But Richard Hughes, chairman of the Office for Budget Responsibility, said boosting growth to 3 per cent would cut the deficit by £38.7bn thanks to higher tax receipts.

The return of economic growth to its previous long-term trend would allow the government to almost completely eliminate the deficit within five years, Britain’s budget watchdog said.

The numbers were revealed in a letter to Labour’s shadow chancellor Rachel Reeves, who claims Rishi Sunak is wrong in focusing on balancing the books in the short term before the economy grows.

she said I: “The UK economy has suffered the worst economic downturn of any major economy and these figures confirm that without urgent action Britain risks being mired in a cycle of low growth and high taxes.

“We need a stronger economy to achieve prosperity across the country and to give the NHS and our other major public services the resources they need in the years to come.

“Work would create a safer economy by spending wisely, taxing fairly and fueling the economy. Instead, Conservatives are trapping the UK in a pattern of low prosperity, with working people paying the price in higher taxes.”

Mr Hughes warned that the outlook for public finances could turn less positive if stronger economic growth were to fuel inflation. He also hinted that in reality “downside surprises” in the form of lower growth than currently forecast are also possible.

UK economic growth has been significantly weaker than its long-term trend since the global financial crisis. Mark Littlewood of the Free-Market Institute of Economic Affairs complained that GDP has been treated by politicians as “an act of God, something that happens to us like the weather, not something we can control.”

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