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UK could test faith in budget rules with spending plan - IFS

UK could test faith in budget rules with spending plan - IFS
FILE PHOTO: Britain's Chancellor of the Exchequer, Sajid Javid speaks with former students at SGS College Filton, where Javid himself studied, in Bristol, Britain, August 30, 2019. REUTERS/Toby Melville/Pool -
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TOBY MELVILLE(Reuters)
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LONDON (Reuters) – Prime Minister Boris Johnson’s government could test the faith in Britain’s budget system this week when it is due to announce spending increases with little clarity on how the economy is likely to fare after Brexit, a think tank said on Monday.

Finance minister Sajid Javid is scheduled to announce a one-year spending plan on Wednesday which he has said will include higher funding for education, health and the police, raising speculation that the government is planning an early election.

“Making big fiscal announcements in a period of great economic uncertainty means we will have little idea how sustainable or costly decisions made this week will be,” Paul Johnson, director of the Institute for Fiscal Studies, said.

The risks were exacerbated by not having up-to-date forecasts for the economy from the Office for Budget Responsibility, the government’s fiscal watchdog.

“Fiscal events and forecasts should occur together if we are to maintain faith in a fiscal framework which has served us well in terms of transparency since it was introduced in 2010,” Johnson said in a statement.

Britain has cut its budget deficit from almost 10% of gross domestic product in 2010 to just over 1% now, giving Javid some room to borrow to fund his planned spending increases.

But Rowena Crawford, an associate director at the IFS, said a slowdown in the economy since March, the last time the OBR updated its forecasts for the economy and government borrowing, posed a problem for Javid.

“In reality he may have a lot less than the 15 billion pounds of headroom he seemed to have back then,” Crawford said.

(Writing by William Schomberg, editing by Andy Bruce)

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