Another independent forecaster has suggested Chancellor Jeremy Hunt will have much more cash to play with than official forecasts suggest in his Autumn Statement on 22 November.
Stephen Millard at the National Institute of Economic and Social Research (NIESR) said: “We think there is a lot more headroom than the OBR would have said back in March.
“Given how the public finances have come in over the past year, I think the OBR will be revising their headroom up towards us.”
Tax revenues have risen as pay has increased with inflation while tax thresholds have been frozen.
According to NIESR, that headroom could be as much as £90bn going forward, compared to a forecast of just £6bn from the Office of Budget Responsibility, which works out the official numbers.
NIESR added that the Chancellor’s priority for the Autumn Statement should be investment in the economy rather than tax cuts ahead of the election, which will be by January 2025 at the latest.
On its calculations, the bottom half of UK earners won't see their real incomes back to pre-Covid levels until 2026 and to boost the economy public investment should rise to 3% of gross domestic product every year with companies given incentives to invest.
NIESR Think Tank Urged UK Chancellor Hunt To Ramp Up Investment - Timeshttps://t.co/sYbclRMYN0
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Public investment is set to fall to 2% of GDP in coming years and making that up to 3% would cost around £30bn, said the think tank.
"Certainly if the government has the fiscal space to do that, that is what they should be doing. What we do not want to see is a pre-election tax giveaway," said Millard
NIESR expects Britain's economy to by 0.6% and 0.5% in 2023 and 2024 before rising to 1.0% in 2025 and 1.7% by 2028.
Inflation should drop to 2% by the end of 2025.