The UK government will need to cut at least £60 billion ($66.7 billion) in spending to keep debt in control, according to think tank the Institute for Fiscal Studies (IFS).
It comes after the government announced an uncosted £65 billion ($72 billion) energy support package and £45 billion ($50 billion) worth of tax cuts along with parts of its plans to boost economic growth.
Chancellor of the Exchequer Kwasi Kwarteng is expected to announce his medium-term fiscal plan to reduce debt as a percentage of GDP on Oct. 31, together with forecast from the Office for Budget Responsibility (OBR).
The estimate is based on a central forecast by investment bank Citi that suggests economic growth over the next five years will average at 0.8 percent a year.
The think tank acknowledged that the forecasts are “highly uncertain in current turbulent times” and that faster growth would “definitely help.”
But it added that if the OBR was to assume an additional 0.25 percentage points of growth each year, which it said is “a big increase,” the chancellor will still need to announce around £40 billion in cuts.
The IFS said the “precise figures here are less important than the need for a credible strategy and plan for fiscal sustainability,” citing “intense external scrutiny” on the government’s fiscal strategy, “not least from the financial markets on which government borrowing depends.”
The think tank estimates that borrowing this year is likely to hit almost £200 billion ($222 billion) and will remain around £100 billion ($111 billion) a year in the medium term, adding that the actual figures will depend on “the path of the economy, inflation and interest rates.”
Downing Street Rejects Austerity
The official spokesperson for Downing Street declined to comment on the IFS analysis, saying he would not pre-empt the chancellor’s announcement on Oct. 31.“Obviously we are committed to fiscal responsibility and getting debt falling as a share of GDP,” he said, adding that the government’s position ”has not changed” on reducing the tax burden.
Asked if Prime Minister Liz Truss will stand by the commitment of her predecessor Boris Johnson to not return to austerity, the spokesman replied: “Yes.”
“These are challenging times and we have made significant interventions costing many billions to provide the necessary support to protect people from these global challenges,” he said.
“Obviously that will require some decisions on spending, but it will be the Chancellor who comes forward to set those out.”
The IFS analysis also comes as Parliament returned from recess on Tuesday.
Senior Conservative MPs piled pressure on Truss and Kwarteng over benefits and their economic plans.
Treasury Committee Chair Mel Stride warned Kwarteng to reach out to MPs to be “absolutely certain” he can get the measures approved or “unsettle the markets.”
Kwarteng was also told by former Cabinet minister Julian Smith that the government must not balance forthcoming tax cuts “on the back of the poorest people in our country.”
The warnings during a session of Treasury questions demonstrated the continuing rifts in the Conservative Party over Kwarteng’s mini-budget and the government’s refusal to rule out giving benefits claimants a real-terms cut to their incomes.
A decision on whether benefits will rise in line with inflation or earnings will be announced by Kwarteng during his medium-term fiscal plan on Oct.31, Downing Street has confirmed.
