OECD tells George Osborne to spread pain of public spending cuts

George Osborne should spread the pain of tough public spending cuts beyond the next two years, according to the OECD in a critique of the chancellor’s debt consolidation strategy.

The Paris-based thinktank said in its latest economic forecast that delaying some of the severe cuts planned by Osborne for the financial years 2015-16 and 2016-17 would “lower the impact on growth”.

The report, which downgraded the UK’s growth forecast and predicted a muted global recovery this year and next, follows an in-depth examination by the International Monetary Fund (IMF) that took an even stronger stance, arguing that countries such as Britain should abandon debt reduction as a key target.

 Treasury officials are understood to be preparing spending cuts to extract an extra 5% reduction in Whitehall budgets, excluding health, schools and foreign aid.

Osborne has signalled that his budget next month will outline where many of the cuts will fall before more detailed proposals in the comprehensive spending review later in the year.

 Tory strategists are keen to push through painful cuts in the early years of the parliament to allow room for tax giveaways and more generous public sector pay settlements ahead of the 2020 election.

 As chancellor in the previous coalition government, Osborne planned to reduce the annual deficit at an accelerating rate to create an overall surplus by the 2018-19 financial year.

 The OECD, which backed Osborne’s austerity measures in the last parliament, said: “Real public spending is to fall significantly in fiscal years 2016 and 2017, to stabilise in 2018 and rebound in 2019.

 Evening out the profile of fiscal consolidation would lower its impact on growth.”It also warned Osborne against heaping most of the pain from public spending cuts on the poorest, saying that cuts should be fair, adding: “Although the composition of measures is yet to be defined, it is important that they mitigate distributional effects.”

 The chancellor has come under pressure from anti-poverty campaigners and local councils, many of them Tory-run, to ease the pace of cuts.

 Last month, the Tory-controlled Local Government Association, said authorities had been forced to impose cuts of 40% since 2010 and would be unable to find more savings without serious consequences for community life and social care, and knock-on effects for the NHS.

 Meanwhile, in their report IMF economists said some countries that had racked up debts in the aftermath of the banking crash, but presided over sound economies, should “just live with” their debts rather than run surplus budgets to bring them down.

 It said: “While there are some countries where clearly debt needs to be brought down, there are others which are in a more comfortable position to fund themselves at exceptionally low interest rates, and which could indeed simply live with their debt (allowing their debt ratio to decline through growth or windfall revenues).”

 The Office for Budget responsiblity has also hinted at its disapproval of the steep cuts planned for the next couple of years in its last report, after describing the path of fiscal consolidation as a “rollercoaster”.

theguardian.com