This Budget was a bit more generous than most people expected but a good deal less so than most Conservative MPs would have hoped. The tone of Philip Hammond’s presentation was upbeat as he tried to make the best of a difficult situation and, for more or less the first time, rather than ladling out gloom, he advanced the prospect of the economy being able to weather Brexit well.
But that is not the message of the Budget numbers. The main action happened offstage, namely in the deliberations of the Office for Budget Responsibility. It lowered its forecasts for the prospective growth of the economy by about 0.5pc per annum over the next few years. This may not sound very much but the consequence is that by 2021-22, the Government’s revenues are forecast to be about £20bn lower than they were.
For once, the fundamental reason behind the OBR’s pessimism is not Brexit. Up until now, it had assumed that poor productivity growth would at some point bounce back to more normal levels. But after repeatedly being proven wrong it has finally thrown in the towel. I suspect it has given up too soon and that we will indeed see productivity growth pick up as the labour market tightens.
Faced with a massive deterioration in forecast revenues imposed by the OBR, you might have imagined the Chancellor would need to announce swingeing cuts in spending and/or increased taxes. But he didn’t. Indeed, this Budget managed a net “giveaway” of £10bn in 2019-20. This was achieved despite the OBR’s forecast deterioration, mainly by allowing the borrowing numbers to rise compared to previously published plans.
Borrowing is now forecast to be some £13bn a year higher than it was. This is the right thing to have done. Even after this slight relaxation of fiscal policy, borrowing is still set to fall below 2pc of GDP next year.
To read Roger Bootle’s piece for the Daily Telegraph in full, click here.