Budget 2020: UK debt to top £2 trillion as government spending 'resembles' Gordon Brown's, Treasury watchdog warns

OBR warns of greater risks than when Labour opened spending taps – even as it slashes its 2020 growth forecast

Rob Merrick
Deputy Political Editor
Wednesday 11 March 2020 18:25 GMT
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The UK’s debt is set to crash through the £2 trillion barrier, with the government’s spending splurge starting to “resemble” Gordon Brown’s, the independent Treasury watchdog has said.

In a verdict that will alarm many Tories, the Office for Budget Responsibility (OBR) said economic policy now mirrored Labour’s in the run-up to the financial crash – but with greater risks.

The Budget plans revealed on Wednesday – £175bn for infrastructure over five years, plus a short-term £30bn injection to protect against the coronavirus – were “sustainable” if borrowing costs remained at rock bottom, it said.

However, the OBR’s director, Robert Chote, said: “The public finances are much more vulnerable to nasty inflation and interest-rate surprises than they were.”

The warning came as the OBR slashed its 2020 growth forecast to the lowest annual level since the financial crisis – 1.1 per cent, instead of 1.4 per cent – even before the “significant” hit from the coronavirus.

It concluded that Brexit had delivered a 2 per cent hit to the economy since the 2016 referendum because of weaker productivity growth and shrinking business investment.

Before the Leave vote, investment had been projected to surge by 20 per cent by this point in 2020, but “has barely grown”, the watchdog said.

It also warned of a further productivity slump to come from the prime minister’s Brexit plans, which could last 15 years because of “lower trade intensity”.

At a briefing, Mr Chote said the OBR was unable to assess the impact of the coronavirus, but he said he expected only “a short-term hit to economic activity”.

However, the OBR’s book also warned: “A recession this year is quite possible if the spread of coronavirus causes widespread economic disruption.”

It said Rishi Sunak‘s Budget was the largest “giveaway” since 1992 and would add about £100bn to public borrowing by 2024, as taxes failed to rise to match.

Borrowing would soar to a six-year high of £66.7bn in 2021-22 – sending net debt to more than £2 trillion for the first time by 2023-24.

The chancellor remained on course to hit his target to balance day-to-day spending by 2023, it said, but the 60 per cent chance of doing so would shrink further because of the coronavirus.

In his speech, Mr Sunak said the OBR was forecasting a 0.5 per cent boost to growth “as a direct result of the plans I’m announcing”.

However, the watchdog said that would be a “sugar risk” over the next two years, because the economy’s capacity constraints lowered output again.

The OBR also warned that – despite economic stagnation ever since the 2016 Brexit vote – most of the negative impact on productivity was still to come.

“We believe that around one third of the long-run hit to productivity from Brexit has already happened, that another third is likely to come over the forecast period and the rest comes through beyond our forecast horizon.”

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