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What scope for looser fiscal policy?

Just how much scope does the Government have to support the economy through looser fiscal policy - i.e. tax cuts or spending increases? At first sight, the answer might appear to be absolutely none at all. After all, public borrowing is already set to come in at around £60bn in the current fiscal year, or around 4% of GDP, well above the Chancellor’s March Budget prediction of £43bn. And that is before anything like the full effects of the downturn in the economy already seen have been felt. These alone could push borrowing up towards £100bn per annum over the next year or two, never mind the additional impact of a further sharp contraction in the economy over the coming quarters.

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