He has based his spending on a forecast by the Office for Budget Responsibility – the least accurate organisation, possibly in the history of British politics. This Writer cannot recall a single prediction it has made that came true.
So the £27 billion it has magicked up with disappear and he will panic.
Who dares to guess how bad that will be for the rest of us?
The chancellor got lucky when the Office for Budget Responsibility raised its forecasts for tax revenue and cut its predictions for interest payments on the national debt. That gave Osborne some much-needed wiggle room to delay welfare cuts, choke back on austerity and spend a bit more on infrastructure.The question posed by the UK’s leading experts on the public finances is whether Osborne will stay lucky. The chancellor has certainly solved some pressing problems, but he has done so either by pushing pain into the future (as with tax credits) or by pushing the pain on to somebody else (as with local government).
As the IFS also noted, Osborne is at the mercy of events. The big number bandied about on Wednesday was the extra £27bn of receipts the OBR has put at the chancellor’s disposal. But that is £27bn over five years: the annual increases are small and would quickly be wiped out in the event that the economy under-performs.
This would not have to involve Britain plunging back into recession, although history would suggest a downturn is due some time in the next five years. It would merely involve a year or two of growth at 1.5% rather than the 2.4% and 2.5% the OBR has pencilled in for the next couple of years.
Paul Johnson, the director of the IFS, says this would be a problem for the chancellor. “He has set himself a completely inflexible fiscal target – to have a surplus in 2019-20. This is not like the friendly, flexible target of the last parliament which allowed him to accept a bigger deficit when growth and tax revenues disappointed. This is fixed, four years out.”
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