Thomas Pope
Some things didn t change yesterday The medium-term growth forecast is still sluggish Real growth of only 1.6% forecast in 2023 Pessimistic view of productivity remains Small improvement from better employment numbers Medium-term borrowing forecast also virtually unchanged Borrowing of around 20 billion at the end of the forecast horizon
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 billion Successive forecasts for borrowing 60 50 40 30 20 10 0-10 -20 October 2018 March 2018 Source: Economic and Fiscal Outlook, October 2018
A big underlying improvement Table: changes to the deficit before effect of policy measures 2018 19 2019 20 2020 21 2021 22 2022 23 March forecast (restated) 36.2 October forecast (pre-measures) 24.3
A big underlying improvement Table: changes to the deficit before effect of policy measures 2018 19 2019 20 2020 21 2021 22 2022 23 March forecast (restated) Higher receipts 36.2-7.4 October forecast (pre-measures) 24.3
A big underlying improvement Table: changes to the deficit before effect of policy measures 2018 19 2019 20 2020 21 2021 22 2022 23 March forecast (restated) Higher receipts Of which Income tax & NICS VAT Corporation taxes Other 36.2-7.4-2.2-1.8-2.7-0.8 October forecast (pre-measures) 24.3
A big underlying improvement Table: changes to the deficit before effect of policy measures 2018 19 2019 20 2020 21 2021 22 2022 23 March forecast (restated) Higher receipts Of which Income tax & NICS VAT Corporation taxes Other 36.2-7.4-2.2-1.8-2.7-0.8 Lower spending Total underlying October forecast (pre-measures) -4.5-11.9 24.3
November 2015 November 2010 December 2012 November 2017 December 2014 November 2011 December 2013 October 2018 November 2016 Absolute revision (per cent of national income) Second biggest Autumn in-year underlying revision since OBR began 1.0 0.8 0.6 11.9 bn 0.4 0.2 0.0 Forecast vintage Source: Economic and Fiscal Outlook, October 2018
November 2015 November 2010 December 2012 November 2017 December 2014 November 2011 December 2013 October 2018 November 2016 Absolute revision (per cent of national income) Second biggest Autumn in-year underlying revision since OBR began 1.0 0.8 0.6 11.9 bn 0.4 Average 0.2 0.0 Forecast vintage Source: Economic and Fiscal Outlook, October 2018
A big underlying improvement 2018 19 2019 20 2020 21 2021 22 2022 23 March forecast (restated) Higher taxes Of which Income tax & NICS VAT Corporation taxes Other 36.2 32.9 27.6 24.8 20.2-7.4-8.0-8.0-11.2-14.1-2.2-0.3-0.4-1.1-1.5-1.8-2.2-2.5-2.7-2.7-2.7-3.6-3.4-4.5-5.4-0.8-1.8-1.6-2.9-4.4 Lower spending Total underlying October forecast (pre-measures) -4.5-4.1-3.7-3.5-4.1-11.9-12.0-11.7-14.7-18.1 24.3 20.8 15.9 10.1 2.1
March 2017 November 2010 November 2015 March 2018 March 2012 December 2014 March 2014 July 2015 March 2011 December 2013 March 2015 March 2016 October 2018 November 2017 November 2016 March 2013 November 2011 December 2012 Absolute revision (per cent of national income) Sixth biggest final-year-of-forecast underlying revision since OBR began 2.5 2.0 1.5 1.0 18.1 bn 0.5 0.0 Forecast vintage Source: OBR Forecast revisions database, October 2018 Economic and Fiscal Outlook and Authors calculations
March 2017 November 2010 November 2015 March 2018 March 2012 December 2014 March 2014 July 2015 March 2011 December 2013 March 2015 March 2016 October 2018 November 2017 November 2016 March 2013 November 2011 December 2012 Absolute revision (per cent of national income) Sixth biggest final-year-of-forecast underlying revision since OBR began 2.5 2.0 1.5 1.0 0.5 Average 18.1 bn 0.0 Forecast vintage Source: OBR Forecast revisions database, October 2018 Economic and Fiscal Outlook and Authors calculations
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 billion Successive forecasts for borrowing 60 50 40 30 20 10 0-10 -20 October 2018, pre-measures October 2018 March 2018 Source: Economic and Fiscal Outlook, October 2018
Pre-measures forecast Tax takeaway Tax giveaway Spending takeaway Spending giveaway Non-scorecard measures Indirect effects Post-measures forecast billion Effects of budget policy measures on borrowing, 2023 24 30 20 +31.1-3.2-4.2 19.8 10 0-10 -20-3.5-5.9 +5.9-0.6 Source: Economic and Fiscal Outlook, October 2018
1948 1953 1958-59 1963-64 1968-69 1973-74 1978-79 1983-84 1988-89 1993-94 1998-99 2003-04 2008-09 2013-14 2018-19 2023-24 Per cent of national income What this means for aggregate tax and spend 50 45 40 Lowest spending as %GDP since 2003 04 Highest receipts as %GDP since 1986 87 Highest tax burden since 1969 70 Total managed expenditure 35 30 Current receipts 25 National accounts taxes Source: OBR Databank, October 2018
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 billion Headroom against 2020 21 borrowing target 60 50 40 30 20 10 October 2018 Structural borrowing below 2% of national income in 2020 21 March 2018 15 billion headroom 0-10 -20 But borrowing still 20 billion in 2023 24 Source: Economic and Fiscal Outlook, October 2018
A double deal dividend? 1) 15.4bn headroom against our 2% Fiscal Rules target True of 2020 21 deficit target But deficit of 20 billion forecast for 2023 24 despite overarching objective to eliminate the deficit by the mid-2020s 2) Better-than-expected deal signed with the EU, uncertainty reduced Likely boost to forecast growth and revenues, reducing some of the forecast 15 billion hit to revenues in 2020 21 But a worse-than-expected deal or no deal would be likely to reduce forecast growth and revenues 3) The UK's net financial contribution to the EU Budget, net of spending done by the EU in the UK or on our behalf Won t deliver saving over next Spending Review period due to divorce settlement and meeting additional costs to public services from Brexit
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 billion Borrowing from next year higher than prereferendum forecasts 60 50 40 30 20 October 2018 10 0 March 2016-10 -20 Source: Economic and Fiscal Outlook, March 2016 & October 2018
November 2016 November 2017 October 2018 billion, 2018-19 terms An unbalanced approach Underlying change in borrowing Total change in borrowing 30 20 10 0-10 Borrowing increase Borrowing decrease -20 Source: OBR Forecast Revisions Database and Economic and Fiscal Outlook, October 2018
November 2016 November 2017 October 2018 billion, 2018-19 terms An unbalanced approach Underlying change in borrowing Total change in borrowing 30 20 10 0-10 Borrowing increase Borrowing decrease -20 Source: OBR Forecast Revisions Database and Economic and Fiscal Outlook, October 2018
November 2016 November 2017 October 2018 billion, 2018-19 terms An unbalanced approach Underlying change in borrowing Total change in borrowing 30 20 10 0-10 Borrowing increase Borrowing decrease -20 Source: OBR Forecast Revisions Database and Economic and Fiscal Outlook, October 2018
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 Debt still much higher than pre-crisis levels and falling slowly 90 80 70 60 50 40 30 20 10 0 March 2018 October 2018, ex. BofE October 2018
2013-14 2018-19 2023-24 2028-29 2033-34 2038-39 2043-44 2048-49 2053-54 2058-59 2063-64 Per cent of national income Constant deficit beyond 2023 24 not cost-free Figure: Paths for the long-run debt 100 With illustrative impact of recessions 90 80 70 60 50 40 30 20 10 0 2023-24 deficit forever (0.8% of national income) 2023-24 no policy measures surplus forever Source: Authors calculations using Economic and Fiscal Outlook, October 2018 and Fiscal Sustainability Report 2018
Summary A substantial forecast improvement Despite a broadly unchanged economic forecast Strong public finances this year assumed to persist over medium term Chancellor spent all of this forecast improvement Mainly on higher NHS spending With the possibility of more spending in the event of a good deal Chancellor continues pattern of responding differently to forecast improvements and deteriorations Further consolidation still required to eliminate the deficit Seems likely that this target will not be met