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Back in black: UK  in current budget surplus as IMF says Osborne was right to cut spending

Britain is now running a current budget surplus as tax revenues cover all day to day spending, for the first full year since 2001.
This surplus, which excludes capital investment by the Government, came in at ?3.8bn for 2017, the Office for National Statistics said.
George Osborne set this as a target in 2010 and hoped to achieve it two years earlier in 2015.
More good news is expected later this month as the Office for Budget Responsibility is set to upgrade its growth forecasts, giving the Chancellor a windfall of extra tax revenues.
Research published by the International Monetary Fund said Britain set an example for other countries to follow in slashing the deficit by cutting public spending, rather than raising taxes.
“Following the financial crisis, the two countries that adopted spending-based austerity and did better than the rest of the sample were Ireland and the UK,” said economists in the IMF's Finance and Development publication.
“The result: growth in the United Kingdom was higher than the European average.”
It is increasingly important that other countries copy this approach, the researchers said, as Governments around the world have racked up too much debt which will harm growth and stifle productivity when interest rates rise.
The surge in global growth gives countries the perfect opportunity to cut their debt burdens - and they should do it by cutting spending rather than by raising taxes, before the economy slows down again and the debt burden becomes tougher to bear.
“Countries take a smaller hit to growth if they cut spending - including for entitlement programs - than if they raise taxes. In fact, the latter can be self-defeating, leading to even higher debt and lower growth,” said Camilla Lund Andersen, editor of the IMF magazine.
Back in black: UK  in current budget surplus as IMF says Osborne was right to cut spending

Britain's economy is growing faster than expected this year, giving Philip Hammond, the Chancellor, more money to play with in this month's Spring Statement - though he is not expected to use it to go on a spending spree

Credit:
Eddie Mulholland
“Governments should use the current upswing to put their house in order. And while each country must chart its own course, the global recovery presents a rare opportunity - rising interest rates will soon make it harder to refinance and service debt.”
Advanced economies have an average government debt of 104pc of GDP, which is close to the highest levels seen since the Second World War.
Political momentum behind deficit reduction has waned in many countries, as years of fiscal restraint led to policy fatigue and the economic recovery made debt reduction appear less important.
But the IMF warns that upbeat assessments of the global economy “ignore debt levels that remain close to historic highs and the inevitable end of the cyclical upswing”.
“Servicing debt will become a major burden,” it warns.
Spending cuts have been unpopular in some instances, but the new study from academics Alberto Alesina, Carlo Favero, and Francesco Giavazzi indicates they are less damaging than tax rises.
Graphic: Government spending and revenue
“Our conclusion runs against the basic Keynesian message, which implies that spending cuts are more recessionary than tax increases,” the trio found.
“On the contrary, our study confirms that expenditure-based plans generally were less harmful to growth than tax-based plans.”
Studying a range of deficit-cutting programmes, the economists found spending cuts of 1pc of GDP hit economic growth by 0.5 percentage points relative to the trend rate of growth, with the dent put in growth lasting for less than two years.
If this is done at a time of economic growth it has no negative impact, so the economy grows even at a time of austerity.
By contrast plans based on tax hikes resulted in a two percentage point fall in GDP relative to its previous path.
“This large recessionary effect tends to last several years,” they said.
This also indicates Britain did the right thing after 2010 by cutting spending to keep the public finances in line.
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