Households facing squeeze after George Osborne's 2016 Budget: think tank
The downgrading of George Osborne's Budget economic forecasts has left households facing falling wages and a squeeze on living standards, a leading economic think tank has warned.
The Institute for Fiscal Studies (IFS) said the deteriorating outlook meant the Chancellor had been forced to "pencil in" another year of austerity, with £10bn in cuts on the way.
In the Commons, Mr Osborne admitted he needed tens of billions more in borrowing after the Office for Budget Responsibility (OBR) said growth would be lower than expected.
However at the IFS's post-Budget briefing, director Paul Johnson said the effects of the downgrade would extend beyond the public finances.
"That loss largely arises from changes in assumptions about future productivity growth," he added. "If the OBR is right about that, we should all be worried. This will lead to lower wages and living standards."
Mr Johnson said the Chancellor was paying the price for having made too much of the £27bn the OBR "found down the back of the sofa" at the time of the Autumn Statement, when he was able to cancel planned tax credit cuts.
The latest changes amounted to a £56bn "loss" to the Exchequer, leaving him with a net loss of £29bn
Mr Johnson warned the Chancellor was "running out of wriggle room" if he was to meet his target of delivering a budget surplus by 2020.
"His chances of him having a surplus are just the right side of 50-50," he said. "If there was another downgrade and the Chancellor did wish to remain on course for a surplus, this would require real policy change, presumably incorporating tax rises and spending cuts."
Mr Johnson said that the gainers from the Budget were at the upper end of the income scale while those at the bottom were largely unaffected.
IFS senior economist Stuart Adam said that even the rise in personal allowances for basic rate taxpayers to £11,500 largely benefited the better off as 43% of adults did not have incomes high enough to attract any income tax at all.
Mr Osborne played down suggestions he would be forced to find more spending cuts or put up taxes to balance the books. "We have got to hold to the course that we have set out," he told BBC One's Breakfast programme. "An independent body which everybody respects, the OBR, has looked at those plans and it says, 'If you hold to the course, if the economy grows as expected, then we will have a surplus towards the end of the parliament'."