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The IFS (Institute for Fiscal Studies) has issued a stark warning about the state of the economy by the next UK general election. The Covid lockdown effects on the economy and the slow recovery would leave a lasting dent in the exchequer’s coffers, with borrowing estimated to be around £100bn higher by 2024.
According to the IFS, a more pessimistic scenario could see the deficit rising to £200bn.
Public borrowing of that magnitude is a significant mover in British politics. £100bn of government borrowing would outstrip the 2008 recession’s effects, one of the significant contributors to the Tory victory over Gordon Brown’s Labour government.
Managing the deficit is a balancing act between public spending and taxes. The Tory voter base would broadly favor the government lowering public spending, a measure that would be virtually impossible given the drastic effects of the covid pandemic. Increased public spending is the only way to combat the virus’s worst effects, particularly as Britain is facing a second wave and a resurgence in positive cases.
Tax revenue has decreased, an inevitable consequence of the lockdown measures, leaving Chancellor of the Exchequer Rishi Sunak in a perfect storm of increased spending and reduced tax income.
According to the IFS, public borrowing for the year would hit £350bn. That’s before any additional measures are put in place to combat the second wave of covid infections Britain is currently experiencing.
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