The IFS today backed the government’s strategy for putting the public finances back on a sustainable footing.
In its green budget, the think tank warned that delaying the plan, as Labour calls for, could undermine investor confidence in Britain. Any fiscal loosening could push up interest rates and be ‘ineffective’ in helping the economy.
The IFS said it ‘continued to believe that aiming to complete the fiscal repair job in one parliament is a sensible strategy as it should be more credible with international investors than a plan that involves tightening in a future parliament’. Instead, the think tank backed the OECD and the Bank of England in saying that the government should stick to its course.
The IFS said:
‘Any fiscal loosening aimed at helping the economy could be ineffective if it prompts an offsetting monetary tightening, and risks undermining investor confidence that the remainder of the fiscal consolidation plan, in which the Chancellor has set such store, will be delivered.
‘Having set out his fiscal consolidation plan, it is important that Chancellor George Osborne resist the temptation to engage in any significant net giveaway in the Budget.’