IFS boss: Plan B “likely” if growth downgrade continues

The Director of the Institute for Fiscal Studies, Paul Johnson, has issued a stark warning to George Osborne that the prospects for growth are weak with a risk that the government may well need a “macroeconomic plan B.”

In this month’s Prospect, the former Treasury official, writes:

“Over the short term, the prospects for growth certainly don’t look rosy. Between October 2010 and March 2011 the economy flatlined. For the March budget, the Office for Budget Responsibility (OBR) downgraded its growth forecasts for 2011 and 2012. Most forecasts are for poor economic performance over the next couple of years…

“If the OBR were to downgrade its predictions of growth, he would likely have to accept a delay in the balancing of the budget. Much more worrying for the government would be a return to recession or a really significant downgrade to the OBR’s estimates of long-term growth. Were that to happen we might well need a macroeconomic ‘plan B.’”

Johnson goes onto warn that the current trend of government u-turns – most recently on sentencing – may force an unintended plan B. He writes:

“The sheer ambition of the cuts may be their undoing… Cuts on this scale have not been attempted in modern times, let alone delivered. Even the NHS, protected from deep cuts, faces its toughest times in a generation.

“We have already seen the prime minister baulking at the consequences of cuts, in his recent rethink on reduced jail terms for certain criminals. As he will no doubt know, in politics, the majority counts; and the clamour for higher spending to help through the hard times may, in time, become too loud for him and his chancellor to ignore.”

But Mr Johnson notes that it is not clear that Labour’s spending plans would have made a substantive difference had the party stayed in power. He outlines that while the government is planning to cut spending by 6.6 per cent of national income by 2015-16. The last Labour government’s pre-election plans involved cuts of 5.4 per cent by 2016-17. “The difference between these two”, he writes, “though perhaps useful for drawing the political dividing lines, should not be exaggerated”

http://twitter.com/alexstreeter/status/83672457550106624 Alex Streeter

IFS boss: Plan B "likely" if growth downgrade continues, reports @wdjstraw http://bit.ly/mNtIZK
http://twitter.com/alexstreeter/status/83672457550106624 Alex Streeter

IFS boss: Plan B "likely" if growth downgrade continues, reports @wdjstraw http://bit.ly/mNtIZK
http://twitter.com/hens4freedom/status/83679902129336320 Hens4Freedom

RT @leftfootfwd: IFS boss: Plan B "likely" if growth downgrade continues, reports @wdjstraw http://bit.ly/mNtIZK #NewsClub
http://twitter.com/hens4freedom/status/83679902129336320 Hens4Freedom

RT @leftfootfwd: IFS boss: Plan B "likely" if growth downgrade continues, reports @wdjstraw http://bit.ly/mNtIZK #NewsClub
http://twitter.com/dryork/status/83688523445702656 Stewart Kirk

IFS boss: Plan B "likely" if growth downgrade continues, reports @wdjstraw http://bit.ly/mNtIZK
http://twitter.com/oranjd/status/83689176507224064 James Doran

IFS boss: Plan B “likely” if growth downgrade continues http://bit.ly/iRgJwr
http://twitter.com/altgovuk/status/83759815201013760 AltGovUK

RT @leftfootfwd: IFS boss: Plan B "likely" if growth downgrade continues, reports @wdjstraw http://bit.ly/mNtIZK #NewsClub
http://twitter.com/wdjstraw/status/83790137959514112 Will Straw

IFS boss, Paul Johnson, says a Plan B is "likely" if growth continues to be downgraded http://bit.ly/mNtIZK
http://twitter.com/mattayg/status/83793192197173249 Matt Gillespie

IFS boss, Paul Johnson, says a Plan B is "likely" if growth continues to be downgraded http://bit.ly/mNtIZK
http://twitter.com/davetomhodges/status/83795863431946240 David Hodges

IFS boss, Paul Johnson, says a Plan B is "likely" if growth continues to be downgraded http://bit.ly/mNtIZK
http://twitter.com/woods_george/status/83800555855691776 George Woods

IFS boss, Paul Johnson, says a Plan B is "likely" if growth continues to be downgraded http://bit.ly/mNtIZK
Ash

Re the difference between Osborne’s and Darling’s plans: in fairness, the main argument being put forward by Labour before the election was that cuts (and further tax rises) *last year* might choke off a fragile recovery. It was to do with the *timing* of cuts rather than the amount. Given what’s happened over the past six months, I’d say they’ve been vindicated on that point.

(NB I don’t mean to defend the Darling plan – just pointing out that the 6.6% vs 5.4% picture is only partial, since timing matters too.)
RichardT

“Re the difference between Osborne’s and Darling’s plans: in fairness, the main argument being put forward by Labour before the election was that cuts (and further tax rises) *last year* might choke off a fragile recovery. It was to do with the *timing* of cuts rather than the amount. Given what’s happened over the past six months, I’d say they’ve been vindicated on that point.”

How so? Which of last year’s cuts caused the choking?
http://twitter.com/johnrentoul/status/83833470870241280 John Rentoul

"Unlike previous recessions, the pain from this one will be shared across society" What Paul Johnson also says, Prospect http://t.co/apazspV
http://bit.ly/mlL66y Marc Clayton

I fully agree. The differences between Labour (which was rather conservative under Blair, Brown) would not have been that different to the Tories now.
http://twitter.com/deedconsulting/status/83877626623705088 Deed Consulting

@TheIFS director in @prospect_uk: unprecedented cuts may be impossible; so many U-turns; too little growth http://t.co/w2zBXfT #austerity
Leon Wolfson

Oh really? Ash is right: even small differences in cuts, and how those cuts are loaded – the Tory cuts are heavily front-loaded in many cases – can make a massive difference to how the economy performs. More, not all taxes are equal – raising VAT for example has done a massive amount of damage to consumer spending.

Then there’s the fact that a massive amount of the savings are being sent straight back *out* by the Tories in the corporation tax cut…
http://www.leftfootforward.org/2011/07/clinton-uks-austerity-budget-could-mean-deficit-will-increase/ Clinton: UK’s austerity budget could mean deficit will increase | Left Foot Forward

[...] a fortnight ago from the head of the respected Institute for Fiscal Studies think tank, that “the prospects for growth certainly don’t look rosy” and that a Plan B might be necessary if the OBR downgraded its predictions of growth. The [...]