EY Item Club warns Chancellor has little room for manoeuvre with Autumn Statement 2014
2nd December 2014 | News
Influential forecasting group, the EY Item Club fears Chancellor, George Osborne will have little room to engineer tax giveaways as part of this week’s Autumn Statement.
The group says this year’s Office for Budget Responsibility (OBR) GDP growth forecast is likely to be increased by 0.25-0.5 per cent to 2.7 per cent, but that will not be matched by higher tax receipts, leaving Mr Osborne with his hands almost tied.
“The improvement in the public finances is in danger of not just stalling but going into reverse,” warns EY.
The OBR’s forecast is considerably lower than many other forecasters who have upgraded their outlook for growth to reflect the UK’s strengthening economy.
In comparison, the International Monetary Fund predicts 3.2 per cent GDP growth in 2014, while the Bank of England and CBI predict 3.5 per cent and three per cent respectively.
EY believes that combined revenues from income tax, national insurance contributions and capital gains tax are expected to drop almost £9bn short of the OBR’s March forecast for 2014-15.
Despite record levels of employment, income tax receipts have recouped much less than anticipated. This has been attributed to the fact most new jobs are part-time or low-paid positions.
Meanwhile a slight deceleration in the UK’s housing market towards the end of the year has also seen income tail off from stamp duty.
Martin Beck, senior economic advisor, EY Item Club, said: “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.
“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.”