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Budget: The tip of the icebergRoger Bootle, economic adviser to Deloitte, gives his view on today's Budget |
- As expected, the budget was a holding operation which left the real decisions to be enacted by whoever is Chancellor after the election.
- The startling thing, though, is that, huge though the borrowing figures are, they are still likely to prove to be too low.
- The borrowing projections are based upon a recovery in the economy next year of 1.25%, and a supercharged recovery, running at no less than 3.5% per annum, thereafter. By contrast, I suspect that there will be a further decline in GDP next year and only a moderate recovery when it comes.
- The main difference in the forecast comes from a different view of stockbuilding, which is notoriously difficult to predict, and of consumers’ expenditure. The Treasury believes that next year it will be rising by 0.25%. By contrast, with high and rising unemployment, falling house prices and average earnings growth at minimal levels, and consumers wanting to rebuild their financial strength, I suspect that consumer spending will fall by 1.5%.
- Because of my greater pessimism about economic growth, I am pencilling in peak borrowing of about £230 billion, or 16% of GDP, next year, compared with £175 billion forecast by the Chancellor.
- The poor state of the public finances has restricted it to a further stimulus of only 0.5% of GDP, a pathetic figure in view of the seriousness of the recession.But neither has the Chancellor done a great deal in the direction of restoring orthodox finances by reducing the borrowing requirement. He has been inhibited by both the concern not to make the recession worse by drawing demand out of the economy now, and by his reluctance, for political reasons, to announce either large tax rises or big cuts in spending.
- The planned growth of public spending has been pared back, but even after these supposedly draconic reductions, as a percentage of GDP debt will not peak until 2015/16. It looks as though it could be thirty or forty years hence before the debt to GDP ratio is back below 40%. In these circumstances the announced squeeze on public spending doesn’t go anywhere near far enough. There will be worse news to come from whoever is Chancellor next year and beyond.
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