George Osborne 'got lucky' with extra spending headroom, Institute for Fiscal Studies says

The organisation's director Paul Johnson says the Chancellor got extra spending headroom by accident

The Chancellor George Osborne (Getty Images)

The Chancellor “got lucky” when the Office for Budget Responsibility forecast that he had an extra £27bn to spend in his autumn statement, the Institute for Fiscal Studies has said.

Paul Johnson, the organisation’s director, told BBC Radio 4’s Today programme that austerity had not ended despite a series of policy changes from George Osborne.

Mr Osborne has cancelled cuts to tax credits and will instead allow them to come in when the new Universal Credit benefits system comes online. The police budget was also ring-fenced from further cuts.

The Chancellor was able to make these spending commitments largely because changing by the Office for Budget Responsibilities to its predictive models showed he had billions of extra head-room.

“Is it real? Well, mostly it’s a set of forecasting changes and he got lucky,” Mr Johnson told the programme.

“So he got lucky in the sense that the Office of Budget Responsibility said ‘we think you’ll get a little bit more’ – and it sounds like a big number, it’s actually a small number in any individual year – a little bit more money from taxes and you’ll be spending a little bit less money on debt interest.”

The head of the respected research institute added that the change gave the Chancellor “quite a lot of wiggle room” but “did not mark the end of austerity”.

“We are still in a world in which overall spending is falling from about 40 per cent of national income to just over 36 per cent of national income,” he said.

“This may not be quite as tight as the last spending review but it’s still the tightest spending review in the last 50 years apart from the last couple of spending reviews so this is still very, very tight.”

Mr Osborne this morning said there was “light at the end of the tunnel” on the economy but also said the review did not mark the end of austerity.

“It’s not an end to the difficult decisions, that spending review,” he told the same programme.

“There are going to be difficult choices for different government departments, billions of pounds of savings, billions of pounds of savings in the welfare budget as well.”

An analysis by the Resolution Foundation think tank found that the combined changed in income from the summer budget and autumn statement still meant people on low income would bear the brunt on spending cuts, with wealthy people doing comparatively well.

Some wealthy people in the 9th to 7th deciles would actually gain from the decisions in the budget and spending review, the think-tank found.

Labour’s John McDonnell accused the Chancellor of “sheer economic illiteracy”.