Chancellor Rishi Sunak’s spending spree marks the largest “Budget giveaway” since 1992 and will add around £100 billion to public borrowing by 2024, according to Britain’s fiscal watchdog.
The Office for Budget Responsibility (OBR) forecast borrowing will soar to a six-year high of £66.7 billion in 2021-22 to fund the Chancellor’s ambitious spending plans.
Mr Sunak unveiled £30 billion of extra spending this year, including £12 billion to tackle the impact of the coronavirus.
It comes just hours after the Bank of England slashed rates from 0.75% down to the historic low of 0.25% as part of emergency action to counter the economic shock of the outbreak.
The OBR estimates the Chancellor’s total Budget spending plans – worth £175 billion over the next five years – will boost growth over the next two years by 0.5 percentage points.
But it will take its toll on the country’s borrowing level.
The OBR forecasts borrowing will jump from £47.4 billion this financial year to £54.8 billion in 2020-21 before surging to £66.7 billion in 2021-22.
Together, the forecasts mean borrowing will total £290.6 billion through to the end of 2023-24 – almost £100 billion more than the £194.1 billion previously forecast by the OBR.
Britain’s net debt is set to reach £2 trillion for the first time by 2023-24 as a result, the OBR revealed.
Robert Chote, outgoing chairman of the OBR, said the spending splurge would leave the public finances “vulnerable”.
He said it “looks like the biggest sustained giveaway since Norman Lamont’s ill-fated budget in 1992” – a pointed reference to the spending announcements of that year that had to be reversed just months later when sterling crashed out of the European exchange rate mechanism.
The OBR also said it gives the Chancellor just a 60% chance of meeting his target to balance the current budget, which would be trimmed further after the coronavirus hit is taken into account.
He will also miss the fiscal targets set by his predecessor Philip Hammond by £9.2 billion, it added.
But Mr Sunak said he has until 2022-23 to meet his more recent current budget target, while the Government has said it plans to review the fiscal framework ahead of the next Budget.
In its economic and fiscal outlook released alongside the Budget, the OBR said it was “impossible” to accurately predict the impact of the outbreak on the economy.
It slashed its outlook for UK economic growth this year to 1.1% – sharply lower than its previous prediction of 1.4% and the lowest level since the financial crisis – but this is before an expected “significant” hit from Covid-19.
The OBR forecasts only factor in a knock to growth of 0.1 percentage points due to coronavirus, given that they were prepared before the most recent spread across the UK and globally.
The OBR said: “It has become clear that the spread of coronavirus will be far wider than assumed in our central forecast, pointing to a deeper – and possibly more prolonged – slowdown.”
Echoing words from Bank of England governor Mark Carney, Mr Sunak warned coronavirus will have a “significant impact on our economy”, though he said it would be temporary.
The OBR outlined a raft of possible impacts on the economy, from slowing exports to supply chain disruption and a slowdown in spending by firms and consumers due to uncertainty as well as likely workforce quarantine action.
The OBR’s latest growth forecasts see a slight upgrade to growth in 2021, to 1.8% from 1.6% pencilled in previously, but lowered predictions for following years, to 1.5% in 2022, 1.3% in 2023, and 1.4% in 2024.