Yesterday’s Budget was more about the OBR’s forecasts than it was the Chancellor’s policy decisions. The forecasts for productivity, earnings and economic growth make pretty grim reading. One should never forget of course that these are just forecasts. But they now suggest that GDP per capita will be 3.5 per cent smaller in 2021 than forecast less than two years ago in March 2016. That’s a loss of £65 billion to the economy. Average earnings look like they will be nearly £1,400 a year lower than forecast back then, still below their 2008 level. We are in danger of losing not just one but getting on for two decades of earnings growth.
The knock on effects on forecast borrowing are obvious – it will be pushed up. The Chancellor was spared maximum embarrassment by better than expected borrowing numbers this year and a rather handy £5 billion resulting from a reclassification of Housing Associations and other ONS changes. Even so, before any policy changes, borrowing is now forecast to be £12 billion higher in 2021–22 than was forecast in March.
The response was not to turn the fiscal screws even tighter. It was not even to leave policy neutral. Rather it was to implement a giveaway peaking, for now, at £9 billion in 2019–20. Taking the figures at face value that giveaway dissipates very quickly thereafter, magically becoming a takeaway by 2022–23. Taking the figures at face value would probably be a mistake though – as the realities of 2022–23 hove into view the purse strings are likely to be loosened once again. As the OBR notes there is an Augustinian tinge to these plans “Lord make me pure, but not yet”.
Less than two years after Mr Osborne was promising a surplus of £10 billion in 2019–20 Mr Hammond is promising a deficit of £35 billion falling, rather optimistically, to £25 billion by 2022–23.