The government’s planned austerity proposals have been questioned by economists, who said claims of a “black hole” in the public finances were wrong.
The Progressive Economy Forum, which campaigns to end austerity, said the “fiscal hole” was merely the difference between an uncertain forecast (of how much the government will spend and borrow under current plans) and what it can afford to do if it is to hit an arbitrary target that debt starts to fall as a proportion of the economy three or five years from now.
If the economy grows faster or the time frame changes, the “hole” can shrink or grow far more than it would because of spending cuts or tax rises.
Using Office for Budget Responsibility forecasts, the authors of the research, Jo Michell and Rob Calvert Jump, concluded that small changes in forecasts for future interest rates and growth, and what is counted as debt, alter the size of the “hole”.
These changes to forecasts and accountancy rules produce far bigger effects on the £50bn “hole” than any changes in spending and taxes the government is reported to be considering.
“There is a consensus among economists that austerity does significant damage to an economy’s potential, undermining growth, as the last decade has shown,” Calvert Jump said.
