EY: Limited room for tax cuts

The EY Item Club is warning the government that there is little financial room to cut taxes at the forthcoming Autumn budget.

According to the influential group, the forecast for growth will rise by around 0.25 per cent to 0.5 per cent this year, but this will not lead to an increase in tax revenue.

“The improvement in the public finances is in danger of not just stalling but going into reverse,” explained a report from EY.

It also warned that chancellor George Osborne will have “very limited room for manoeuvre” when he announces his Autumn Statement on Wednesday (December 3rd).

Predictions from the EY Item Club conclude that the Office for Budget Responsibility (OBR) is likely to increase its current 2.7 per cent for GDP growth forecast for this year by a small amount.

Martin Beck, senior economic advisor to the EY Item Club, explained: “In recent Autumn Statements, the chancellor has been able to trumpet a series of upward revisions to the OBR’s growth forecast as evidence that his economic plan is working. This time, that’s where the good news is likely to end.

“The improvement in the public finances is in danger of not just stalling but going into reverse. With just five months to go it appears virtually impossible for the government to achieve the OBR’s current forecast for borrowing in 2014-15.”

Figures from the International Monetary Fund are predicting 3.2 per cent growth in 2014, with the Bank of England forecasting 3.5 per cent and the CBI claim it will be close to three per cent.

EY also expects borrowing forecasts for future years to be revised, with the chancellor delivering a surplus a year later than he originally planned, in 2019-20.

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