Budget Surplus is a blow to the OBR

Budget Surplus Is A Blow to The OBR

• 
  
  
  
  
  
  
• 
  
  
  
  
  
  
• Share
  
• Comments (2)
  

Ed Conway

February 21, 2012 6:47 PM

• 
  
  
  Recommend post (1)
  

If this morning’s public finance figures are anything to go by,
the Chancellor will borrow significantly less over the course of this
year than was expected. In fact, he’s on course for total borrowing this
year of just under £120bn. That would be lower not merely than was
forecast in November, but also lower than the previous Budget forecast,
and pretty much in line with the forecast at the time of George
Osborne’s first Budget in 2010.
One interpretation is that the
Chancellor’s austerity plan has been rather more successful than
previously anticipated (hence spending is lower); another that the
economy is growing faster (eg more tax receipts). But perhaps the more
intriguing one is that, when you look long and hard at the economy,
nothing has really changed.
The Office for Budget Responsibility’s
decision to raise the borrowing forecast was based less on expectations
for the Government succeeding or failing in its plan than on a sudden
reconsideration of how strong it felt the economy was (which in turn
dents the public finances). As the Bank of England Governor, Sir Mervyn
King, put it just last week:
I
think the OBR basically said - hmm. They thought again and decided that
the judgement they made in the spring was the wrong one, and they
changed it in the autumn. I think they are now more pessimistic then we
are on that, but the fact is nobody really knows. I mean this is almost
impossible to judge - about the amount of potential output in the
economy. And we should be honest about that.
But I don't
think there was any real news in the six months between the spring and
the autumn to justify anything that would - I mean, it may be that they
corrected a position which they regret that they took in the spring, but
I don't think there was any news that would justify that real change.
And certainly nothing that would justify a significant change of policy.
In
other words, perhaps the OBR was simply too pessimistic on the economy
in November, and may be forced into an embarrassing double u-turn at the
Budget next month. It would be an awkward moment for a fledgling
institution which, under its chairman Robert Chote, is only starting to
find its feet.
Meanwhile, Treasury sources are being very clear
that their plan is unlikely to change. As one put it: “the idea that any
upside surprise in the public finances should result in a giveaway
Budget is exactly what got us into this mess in the first place! It’s
absurd to talk about giveaways when we still have one of the biggest
budget deficits in the G20.”