• We now know why the Prime Minister chose not to go to the country early. The economic and financial position has worsened such that it would now only be possible to give some significant pre-election sweeteners by raising the already high borrowing numbers still more and hence endangering the government’s reputation for fiscal prudence.
• In the event, the Pre-Budget Report (PBR) reflected a keen political judgment in partially adopting the Conservatives’ tax proposals while appearing to direct extra money at the margin into spending on health and education.
• Overall, the PBR was pretty much fiscally neutral, giving away small amounts for the next two years (mainly on inheritance tax measures) and raising it in the next two (mainly through the end of capital gains tax taper relief and the reform of non-domicile taxation).
• The Chancellor’s acknowledgement of the darker economic outlook is marginal. He reduced the forecast for growth next year to 2% to 2½%. We are forecasting 2% – but the outturn could easily be much worse than our forecast. Moreover, it is noteworthy that the official forecast envisages growth rebounding to a higher level than previously forecast in 2009/10.
• It is this which explains how, after raising his borrowing numbers for next year by £6bn, borrowing is pretty much back to the previous track within three years.
• We suspect that, without significant further tax rises, borrowing will turn out to be nearly £10bn higher than the official forecast for 2009/10 and by 2011/12 it may still be standing close to £40bn.
• Furthermore, this reflects a central forecast, yet economic risks are now firmly skewed to the downside. Moreover, given this, and the clear chance that government spending will not slow as much as the Treasury’s plans envisage, the risks to borrowing are skewed to the upside.
• Mr Darling’s first PBR was a workmanlike performance without the bravura of his predecessor. But economic circumstances are much less favourable for him. And they may well get less favourable still. As always, Chancellors can only achieve what the economy allows. We may be entering a new period of hard problems and hard choices. 

Ends

Notes to editors
This press release has been prepared by Roger Bootle, Economic Adviser to Deloitte.  If you have any questions regarding the views in it, please contact Roger Bootle directly on 020 7823 5000 or via email on business@capitaleconomics.com.

This press release contains general information only and is not intended to be comprehensive nor to provide professional advice.  It is not a substitute for such professional advice and should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business.  Deloitte & Touche LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from acting as a result of any material in this publication.

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In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other’s omissions. Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority. The information contained in this press release is correct at the time of going to press.