The think tank says that under David Cameron’s Tories, GDP will grow in 2010 to 1.2 per cent and to 1.4 per cent by 2014. It says these forecasts are still below the “highly optimistic” Budget predictions of the Labour party, which predicts GDP growth of 3.25 per cent by 2011.
CEBR says that a hung parliament with a Liberal Democrat and Labour pact would mean similar GDP growth in the short term, but £20bn more in taxes and public spending from such a coalition would mean that between 2015 and 2020 GDP would be stifled by 0.3 per cent per annum.
So by 2020, CEBR says GDP would be £20bn better off due to fewer taxes and less public spending under a Tory government.
CEBR chief executive Douglas McWilliams says: “Whatever happens, a higher tax strategy is likely to lead to significantly slower economic growth in the longer term.”
But the think tank’s forecasts also assume that the bond market will force effectively the same scale of fiscal retrenchment whoever is in power. Senior economist Charles Davis says: “Whoever wins power will have to take tough decisions – in our view at least £35bn more fiscal action than was assumed in the March Budget.”