Chancellor George Osborne’s Autumn Statement confirms the ‘comprehensive failure’ of the coalition’s deficit reduction agenda – in part due to lower than expected tax revenues, according to research by Sheffield University experts.
A report by the Sheffield Political Economy Research Institute found a ‘consistent mismatch’ between economic forecasts and economic reality which reveal the Government’s failure to acknowledge profound changes in the UK economy.
Analysing data from the Office of Budget Responsibility, SPERI researchers found that in 2013/14 income tax revenue was £155 billion, compared to a forecast of £178 billion at the 2010 Autumn Statement – an over-forecast of 15 per cent.
In November 2010, the OBR expected income tax revenue to increase by an average of six per cent each year. In reality, the annual increase has averaged two per cent.
The report also found the OBR had forecast average earnings would increase by three per cent up to the end of 2013, when the actual figure was two per cent.
Wage stagnation has also had an impact on benefit expenditure as tax credit expenditure has turned out to be higher than in every previous forecast.
Dr Craig Berry said: “The fall in income tax revenues is not a sudden, unexpected dilemma confronting the Coalition government. Revenue has been consistently below expectations – despite employment being much lower than had been anticipated.
“The Coalition’s understanding of the budget deficit as a problem caused by over-spending is significantly challenged by this analysis. The overriding story is that austerity has failed to produce any meaningful progress on deficit reduction.”