The deficit is lower than forecast a year ago, but still higher than forecast in March 2016: £32 billion higher in 2020–21. That would lead to lower growth and hence a fiscal cost.Īnd don’t forget the context. Remember that the OBR forecasts are all predicated on a fairly smooth transition, certainly not on crashing out of the EU without a deal. Of course if things go wrong with Brexit – or indeed for other reasons – then that headroom could be removed. It would mean spending rising not just overall in real terms, but even for “unprotected” departments, and as a fraction of national income. Extra spending of that sort would, finally, allow the Chancellor to say with rather more conviction that austerity really was coming to an end. Even an extra £15 billion a year on top of current plans could keep borrowing within that 2% of GDP limit, and keep debt falling as a fraction of national income – albeit slowly. The OBR notes that the most recent Real Time Information suggests that pay of the top 0.1% has been rising considerably faster than the average over the last year or more – something which was not true for most of the period after 2010.Īssuming that he is not fiercely wedded to a target of balancing the books completely by the mid 2020s – and the evidence doesn’t suggest he is – then he probably would have room to find a reasonable amount of extra cash for the spending review period. Note, though, that this improvement in the public finances comes in part on the back of a widening in the earnings distribution. On current forecasts, it will remain low, and within the Chancellor’s fiscal target of a deficit below 2% of national income in 2020-21, for the next few years. It is £14 billion less than forecast just a year ago. At 1.1% of GDP that’s its lowest level since 2001-02.
Borrowing is set to come in at just £23 billion this year.
The public finances again surprised on the upside, with forecasts improving even on the big gains we saw back in October. There are some clues as to where we might end up going with the spending review, assuming Brexit goes somewhat as planned. Indeed, by once again declining to set totals for the forthcoming spending review, he deferred making some of the biggest non Brexit decisions of the parliament.įor that spending review, which we now know is planned to cover three years from 2020-21, will determine whether austerity really has ended and whether spending on public services will finally start to move decisively upwards after nearly a decade of unprecedented cuts. One fiscal event a year is plenty.Īnd under the circumstances, coming as it did right in the middle of the votes on Brexit, which will play such a central role in determining the path of the economy over the coming years, it is unsurprising that Mr Hammond did not make any big fiscal decisions. Well, yesterday’s Spring Statement certainly met the Chancellor’s objective of not constituting a fiscal event.
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