More austerity as Treasury faces £20bn black hole

by Calum Fuller

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07 Mar 2014

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George Osborne

THE CHANCELLOR faces plugging a £20bn black hole in the public purse as official government economic forecasts.

As a result, an additional year of public spending austerity may be required in order to balance the UK's books. The models, produced by the Office for Budget Responsibility, suggest the government should refrain from relying on an economic recovery to cover the shortfall, the Financial Times reports.

The news comes just 12 days before George Osborne delivers the Budget and approximately a year before the next general election. If the forecasts are correct, the next government faces the prospect of introducing further cuts or tax rises, just as the UK's nascent recovery gathers speed.

The Conservatives are set attempt the cover the cost through cuts alone, while both Labour and the Liberal Democrats expect to use both cuts and tax rises in tackling the deficit.

It would also mean additional pressure for HMRC to close its tax gap, currently standing at £35bn, or 7% of tax due, with public and political pressure on the taxman to make large companies and rich individuals the focus of attention.

The origin of the black hole comes from the difference between the actual deficit - thought to be close to £111bn in 2013/14 - and the cyclically-adjusted deficit, put at around £85bn this financial year. So far politicians have assumed that they only need to look at the lower figure.

Should the chancellor take the OBR's findings into account in this month's Budget, it is unlikely to mean immediate cuts or tax increases. Instead it would influence the tone for the next parliament.

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