The Financial Times:
Chancellor likely to overshoot borrowing forecast, economists say
2 January 2017
Contributing factors include weaker tax revenues and pressure to rein in cuts
Question: ‘Do you think the government will need to borrow more than it has forecast in 2017?’
Stephen Machin, professor of economics, London School of Economics
Government borrowing, if it is for areas that increase long-term growth, is not a bad thing. Indeed, while borrowing to fund infrastructure and innovation may increase the deficit in the short run it will probably decrease debt/GDP in the long run due to the effects on productivity and GDP growth (this is why countries like Italy that have not invested in these areas have low deficits but high debt/GDP). I believe, however, that UK borrowing will increase for the following good and bad reasons: (1) GOOD: because it seems that May’s government wants to bet on an active industrial and innovation policy: this requires an active investment strategy which in the short-run may increase the deficit. (2) BAD because Brexit will continue to be a major drain on the economy, causing government to waste a large amount of resources in managing the process (with evidence that they are already paying KPMG and other consultants exorbitant rates for the ‘outsourced’ part of this management), and also to make up for the lost (eventual) EU investment (Horizon, ERC, EIB etc). And (3) BAD because the fall in corporate income tax will increase the deficit, without having any effect on real investment. It will, I believe, only fuel inequality, which in the long run also raises the deficit, both due to the welfare payments that rise with inequality, and the lower tax receipts.
John Van Reenen, professor of economics, MIT
The current plans remain too optimistic. He will correctly use more flexibility to expand investment from current plans. Will not cur current deficit as much as planned.