George Osborne warned UK will miss key debt targets
Chancellor urged to scrap cuts agenda after IMF warns deficit target is likely to be missed
The Chancellor will miss one of his key fiscal targets, the International Monetary Fund warned yesterday, prompting calls for the Government to adopt a Plan B on the economy.
In June 2010 , George Osborne gave himself a "fiscal mandate" to ensure that national debt as a share of GDP is falling by 2015-16. But in its annual report on the health of the UK economy, the IMF said Britain's national debt will still be rising by then.
Embarrassingly for Mr Osborne, the IMF said that government debt will peak at 79.7 per cent of GDP in 2015-16, and will not start to fall until 2016-17.
"Under [our] staff's weaker medium-term growth projections, the net debt target is expected to be met one year late," it said.
If the IMF's forecast is correct, Mr Osborne is facing a very difficult choice. He can either scrap the national debt target, which would be a political embarrassment, or he can impose greater cuts and tax rises in an attempt to get back on track. The latter would almost certainly further weaken an economy suffering its second recession in three years.
The Shadow Chancellor, Ed Balls, said that the latest forecast was further evidence that the Government's Plan A for the economy had failed.
"They say that weak growth means the Government will miss its debt target and that the Chancellor's existing policies risk causing permanent damage to the British economy" he said.
The IMF urged the Chancellor to scrap his pledge. "A delay [on meeting the national debt target] should be accommodated," it said.
Cutting the national debt by the end of the Parliament was only one half of the Chancellor's fiscal mandate. The other target was to eliminate the deficit by 2016-17. The IMF said that the Government is on course to achieve this, but only by the narrowest of margins. It forecast that the budget will be in surplus by just 0.1 per cent of GDP in 2016-17, against the Office for Budget Responsibility's forecast of a 0.5 per cent surplus. Even a small growth downgrade would put the Government on course to miss that target too.
The IMF also repeated its call from May for the Government to slow down the pace of its planned cuts next year to support the economy if growth does not pick up, recommending higher infrastructure spending and tax cuts.
It also welcomed the additional £50bn of money printing by the Bank of England and the Government's new Funding for Lending Scheme to get credit to hard-pressed British firms and households.
The Treasury stressed that the IMF still described the Government's plans as "appropriate" and welcomed its support for credit-boosting schemes.
Ministers are, nevertheless, resigned to the fact that growth will remain weak and spending cuts will be extended far longer than they initially planned.
David Cameron said in an interview this week that he "does not see a time" when the austerity programme will end.
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