Anaemic growth figures mean no end in sight for austerity, says IFS

The Institute for Fiscal Studies (IFS) has warned that anaemic growth and the likelihood of further cuts mean wages will be no higher in 2022 than in 2007

The think tank’s post-Budget analysis suggests UK workers will have gone through a full 15 years of little or no earnings growth before the picture begins to improve.

‘On current forecasts average earnings will be no higher in 2022 than they were in 2007. Fifteen years without a pay rise. I’m rather lost for superlatives. This is completely unprecedented,’ said IFS director Paul Johnson.

The economic forecasts from the Office for Budget Responsibility significantly downgraded the UK’s projected performance in terms of growth and productivity, which Johnson said made ‘pretty grim reading’.

‘The nascent recovery in earnings, which were growing through 2014 to the first half of 2016, has been choked off. That they even might still be below their 2008 level in 2022 as the OBR forecasts is truly astonishing. Let’s hope this forecast turns out to be too pessimistic.’

However, Chancellor Philip Hammond said he hoped the predictions would prove too conservative and that confidence would return once there is more certainty around Brexit.

‘One should never forget of course that these are just forecasts,’ said Johnson. ‘But they now suggest that GDP per capita will be 3.5% smaller in 2021 than forecast less than two years ago in March 2016. That’s a loss of £65 billion to the economy.

On borrowing, Johnson noted the Chancellor was ‘spared maximum embarrassment’ by better-than-expected borrowing numbers this year and a ‘rather handy’ £5bn resulting from a reclassification of Housing Associations and other ONS changes. Despite that, before any policy changes, borrowing is now forecast to be £12bn higher in 2021–22 than was forecast in March.

‘This is not the end of austerity. Not by a long chalk. There are still nearly £12 billion of welfare cuts to work through the system, while day-to-day public service spending is still due to be 3.6% lower in 2022/23 than it is today.’ 

The IFS's Budget Analysis is here.

Report by Calum Fuller

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