George Osborne should cut less than planned over the next three years in order to support growth, the OECD has advised.
The Paris-based economic organisation, which was a major supporter of the Chancellor’s contentious fiscal consolidation in the last Parliament, said yesterday in its latest forecast that Mr Osborne should make the profile of spending reductions “more gradual by extending it beyond 2018” in order to “lower its impact on growth”.
The Chancellor plans to turn a deficit of around 5 per cent of GDP into a small surplus by 2018-19 by stepping up the pace of spending cuts significantly in 2016-17 and 2017-18.
Yet spending is projected to bounce back strongly in 2019-20.
At the March Budget the Office for Budget Responsibility criticised this “roller-coaster” spending path.
The OECD also said the Chancellor must be careful not to hurt the vulnerable in his efforts to reduce the deficit.
“Although the composition of measures is yet to be defined, it is important that they mitigate distributional effects” the organisation said in its latest Economic Outlook.
Mr Osborne has promised to cut £12bn in working age welfare, but has not yet specified where the majority of these cuts will be found.Reuse content