The Financial Times:
Economists' forecasts: Osborne faces problems imposing more cuts
3 January 2016
Chancellor George Osborne will struggle to impose further spending cuts over the next five years, most economists believe.
Question:
Fiscal policy: Please explain which of the below statements is closest to your views.
George Osborne will:
a) struggle to impose his planned spending cuts and revenues will fall short of expectations
b) struggle to impose his planned spending cuts but revenues will remain on target or better
c) succeed in cutting spending, but revenues will fall short
d) succeed in cutting spending and revenues will remain on target or better
John Van Reenen, Director, Centre for Economic Performance:
b) struggle to impose his planned spending cuts but revenues will remain on target or better
Osborne has been raising taxes so revenues will increase because of this. He will probably loosed spending cuts some more as he has already done. The key problem is that the target to create a surplus on the total budget makes no economic sense. There is no reason to keep public investment damped down by the target, not to fix an arbitrary date instead of a 5 year ahead planning horizon as in the OBR's original mandate.
Related links
John Van Reenen webpage
Growth Programme webpage