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Borrowing figures put pressure on plans to eliminate the deficit

23 Dec 2015

The Institute of Directors has said a disappointing set of borrowing figures could put George Osborne’s plans to eliminate the deficit under strain.

James Sproule, Chief Economist at the Institute of Directors, said:

“Another set of disappointing borrowing figures raises questions about the Chancellor’s underlying assumptions as to how to eliminate the deficit. The government is relying on tax receipts growing by an average of five per cent a year to hit their forecasts – an ambitious target which far outstrips the growth of the wider economy. This financial year, government revenues are up only 3.9 per cent on where they were last year – a timely reminder of just how difficult a process deficit elimination is proving to be.

“If government borrowing figures continue to come in below target, businesses will worry that the chancellor may let his plan to run a surplus slip, or raise tax rates to plug the gap. Businesses are already being asked to cough up around £12 billion through an additional payroll tax, the Apprenticeship Levy, by the end of the parliament and they will not be pleased if the Chancellor reneges on his deal to cut corporation tax to 18%. Personal taxes, too, may face the squeeze if borrowing remains too high, and the promised £12,500 personal allowance and £50,000 higher rate threshold could be put on hold.

“The Chancellor has assumed that tax revenues are going to revert to their long term averages over the next few years in his budget plans. A few more bad months, or an economic stumble at some point could set these targets well off course.”

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