The respected Institute for Fiscal Studies think tank today urged George Osborne to prepare a 'Plan B' for fiscal consolidation in case growth prospects deteriorate.
The respected Institute for Fiscal Studies think tank today urged George Osborne to prepare a ‘Plan B’ for fiscal consolidation in case growth prospects deteriorate. The Chancellor told the BBC Politics Show on Sunday that there was no alternative to his planned cuts.
Early headlines from the Telegraph, Standard, and Guardian have reproduced the IFS’ press release which outlined that there was “little room for Budget easing”. But as reported on Sky, the small print of the document and discussion at the event clearly called for the development of a Plan B in the medium term.
The Summary of the Green Budget document says:
“It may therefore make sense for the government to consider ways of reducing the pace of fiscal consolidation should demand conditions deteriorate significantly – enabling it to ‘trim the sails’ again in the same manner that it did so last November.”
Chapter 5 of the Green Budget includes a graph (reproduced below) showing how different growth scenarios would impact the budget balance forecasts. On both the central and pessimistic case developed by Barclays for the IFS, growth would come in lower than anticipated by the OBR with a knock on effect on the deficit.
The report says:
“Although there may be no need to implement an alternative short- or medium-term plan at this stage, the Chancellor would be best advised to consider how he would respond to a changing – and, in particular, a worsening – outlook for the economy, the public finances or the quality and quantity of public services being enjoyed. Having such alternative plans to hand could prove useful.”
Responding to a question from the Financial Times’ Chris Giles, Michael Dicks of Barclays Wealth said:
“[The Chancellor] shouldn’t commit to cuts in stone. If growth was weaker than expected [the Government should] cut more slowly.”
While Carl Emmerson of the IFS added:
“It would be unlikely that the optimal spending decision in October 2010 would be optimal in 2012.”
18 Responses to “IFS urges Osborne to develop a Plan B”
Mark Stevo
Oh FFS I hate typing on the iPhone. Cherry-living indeed…
Ed Jacobs
Probably worth remembering that in December Cabinet Secretary, Gus O’Donnell was reported in the FT to be drawing up contingency plans in case Osborne’s plans don’t work out. See http://www.ft.com/cms/s/0/79089788-06f3-11e0-8c29-00144feabdc0.html#axzz187Th6gO8
Will Straw
Sean – Rowena Crawford of the IFS was very clear this morning that the deficit was due to the recession not to Labour’s (very modest) borrowing before the financial crash which the Tories supported. This ippr report contains more information.
Mark – Good question. I’m not dismissing the IFS’ claims at al. They say two distinct things: (i) given where expectations currently lie, Osborne should not make the forthcoming Budget a giveaway, and (ii) that he should develop a Plan B in case things turn out worse than the OBR expects in 2 years time. My position has always been that Osborne should have started on a different trajectory. I think his judgment was wrong to take such a severe course but now that we are where we are, the markets probably would punish any short-term deviation. But that does not mean that he should not develop a Plan B setting out an alternative strategy in case growth falls below 2%.
All the best,
Will
Mark Stevo
Thanks Will, especially for bearing with my ill-constructed missive.
What you seem to be saying is that there is no practical alternative to the cuts right now (not withstanding your desire for a publicly declared Plan B), which would seem to be a divergent view from what we read in other articles on this website.
Jane Davidson
RT @leftfootfwd: IFS urges Osborne to develop a Plan B: http://bit.ly/eQvLdB reports @wdjstraw