Thread by @BenChu_

The idea stronger growth this year means Sunak can cancel future tax rises seems confused to me - or at least an incomplete analysis.

Brief thread 🧵

Assuming no public spending changes, when it comes to pressure for tax rises to balance spending with tax revenues...

....what matters is the projected structural deficit *after* the recovery is complete.

And what determines *that* will be the scale of long-term scarring to GDP (i.e the level of GDP relative to pre-crisis expectations)...

The Bank is currently projecting 1.25% GDP scarring...

....A faster recovery to a lower (scarred) path of GDP doesn't change the size of the post crisis structural deficit & longer term pressure for tax rises.

For that to happen you need projections of lower scarring...

...now this *might* well happen.

The OBR projected 3% of GDP scarring in March.

That's higher than the Bank's 1.25% of GDP projection this month, which was itself reduced from a 1.75% projection last year...

...so the OBR estimate could quite conceivably come down in the Autumn when its next forecasts are due.

But it's *that* judgement which will be crucial to the tax pressure outlook, not any upgrades in near-term GDP growth forecasts...

...And, as I've stressed many times, the economic debate should really be about what fiscal policy stance will make this reduced long term scarring more likely 👇

ENDS

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