'Austerity Era Could Last Up To Eight Years'

A key financial target of the Chancellor's Autumn Statement next week may have to be abandoned, according to a leading think tank.

The Institute for Fiscal Studies (IFS) has said that the target that debt should be falling in the 2015-16 tax year may be too difficult to achieve.

The IFS added that George Osborne may even be forced to announce yet more spending cuts or tax increases for the next Parliament in order to meet his other fiscal targets.

Mr Osborne will reveal his Autumn Statement on December 5. It is expected to provide an update on the Government's plans for the economy based on the latest forecasts from the Office for Budget Responsibility (OBR).

The latest OBR forecasts will be published alongside the Chancellor's Autumn Statement.

According to independent forecasters, the OBR will take into account a weaker outlook for the UK economy and concern over tax revenues during the last seven months.

The issue of corporation tax has become a hot political issue in the last two weeks after it emerged major US multinationals such as Google, Amazon and Starbucks greatly restrict their tax liability through complex offshore structures.

The angry backlash was prompted by the revelation that Starbucks has only paid £8.6m UK corporation tax in the past 13 years, on sales of £3.1bn.

The IFS said that if the trend for borrowing so far this year persists for the remainder of the year, public debt borrowing in 2012-13 would total £133bn.

The era of austerity could run for eight more years, according to the IFS

Excluding the one-off impact of the transfer of assets from the Royal Mail Pension Plan, the borrowing figure would be £13bn higher than forecast by the OBR.

This would mean that underlying borrowing rose between 2011-12 and 2012-13 rather than fell as the Chancellor had intended.

This £13bn overshoot in borrowing arises from an estimated shortfall in receipts of £17bn, offset partially by a £4bn underspend by Whitehall departments.

IFS deputy director Carl Emmerson, said: "Since the budget, the outlook for the UK economy has deteriorated and Government receipts have disappointed by even more than this year's weak growth would normally suggest.

"If much of the additional weakness this year feeds into a permanently higher outlook for borrowing, the planned era of austerity could run for eight years - from 2010/11 to 2017/18."

TUC general secretary Brendan Barber reacted angrily to the IFS prediction. "This analysis shows that the Chancellor's economic strategy is failing on all counts," he said.

"The UK should be on the road to recovery by now. Instead we could be set for a prolonged period of debilitating austerity well beyond the next election.

"The Chancellor should use his Autumn Statement next week to change course. Sadly he looks set to drive the economy even faster in the wrong direction."

IFS researchers will present their analysis at a briefing the following day, Thursday 6 December.

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