George Osborne could be forced to borrow billions of pounds more than forecast by 2020 if he sticks with spending cuts that will hit economic growth, according to a report by City University.
With only days to go before the chancellor’s autumn statement, the report says the Treasury has underestimated the impact of welfare and departmental spending cuts on the broader economy and especially cuts to public sector investment.
Without a boost to public infrastructure, private sector businesses will limit their own investment plans, leading to lower productivity and depressed GDP growth over the next four years.
By 2020, the government will be forced to report a £40bn deficit instead of the planned £10bn surplus, the report concludes, undermining Osborne’s fiscal charter, which dictates that governments borrow only in times of distress.
The study by two academics from City University comes only days before the chancellor is expected to tell parliament that he plans to achieve a budget surplus by 2020 from a mixture of cuts to departmental spending and welfare and from higher tax receipts, especially income tax and national insurance.
