The Chancellor, George Osborne will admit today that the government deficit has increased by nearly £30 billion since the coalition government came to office.
He will be forced to concede that public sector spending cuts and austerity policies will have to continue for far longer than outlined in the spending review announced in October 2010 when the Chancellor outlined his plan to cut the deficit within four years, by 2015.
Mr Osborne will still say that he will hit his targets for deficit reduction but only by extending public sector cuts beyond 2014-15 and by spending money on capital projects where expenditure can be carried forward rather than costs that his the Treasury’s bottom line immediately.
The government set up the Office for Budget Responsibility (OBR) as an independent body and its forecasts for economic growth and government borrowing, the latest of which will be published tomorrow has provided Mr Osborne with little option but to spell out the stark facts that government borrowing is rising, not falling.
This will provide the Labour party opposition with plenty of scope for attacking the way the coalition is handling the economy and its deficit reduction policy.
In his last budget, back in March, just eight months ago, the Chancellor predicted that there would be a surplus of £6 billion in the public finances in 2014-15. However, he will now have to admit that the position is close to £30 billion less, with a deficit of close to £25 billion by 2014-15.
The OBR’s revised forecast will mean that the official forecasts are similar to that of other forecasts such as the Organisation for Economic Co-operation and Development (OECD) which yesterday said that the UK is entering a recession now, in the fourth quarter of 2011.
The OBR will cut its forecast of how quickly the UK’s economy will recover because there has been little growth in productivity in the UK economy. If growth continued at current predictions this would increase the structural deficit by around £30 billion.
At the CBI conference last week, David Cameron’s speech laid the foundations for the government to present a bleak picture of the economy over the next few years by saying that cutting the deficit in the UK’s public finances was “proving harder than anyone envisaged.”
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