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- Title
Is the UK government pursuing the correct fiscal plan?
- Abstract
The Autumn Statement saw the Chancellor reaffirm his objective of achieving a budget surplus in the next Parliament and he followed this by introducing a binding target to balance the structural current budget by 2017-18., But this places even more policy weight on the 'output gap' - a variable which cannot be measured with any certainty and which, as a concept for dictating policy, has serious flaws. If the OBR is too pessimistic on spare capacity, the outcome will be an unnecessarily tight fiscal squeeze., Meanwhile, a fiscal surplus requires that another sector of the economy runs a deficit. So committing to this objective implies more control over the public finances than governments actually enjoy., Returning the public finances to the black would be positive for fiscal sustainability. But it could have some undesirable consequences if the counterpart to a stronger fiscal position is, as expected, the household sector moving further into the red., Furthermore, our detailed analysis of the government's latest spending plans concludes that the scale of the planned cuts to departmental spending will be impossible to deliver, particularly given the commitments to protect spending on health, international development and parts of the education budget., As such, in a departure from our normal practice, our UK macroeconomic forecasts assume that the planned spending cuts will be reined back, regardless of who wins the next election.
- Subjects
UNITED Kingdom; FISCAL policy; BRITISH politics &; government, 2007-; BUDGET; GREAT Britain. Office for Budget Responsibility; SURPLUS (Economics); PUBLIC finance
- Publication
Economic Outlook, 2015, Vol 39, Issue 1, p5
- ISSN
0140-489X
- Publication type
Article
- DOI
10.1111/1468-0319.12132