From the TUC

#Budget2016 arithmetic made simple: the madness of George’s surplus rule

16 Mar 2016, by in Economics

The Chancellor has broken his welfare cap. He bust his debt rule (again). The great part of the policy action seems to have been about making sure it wasn’t a full house of broken rules.

Because of the significantly weaker economy, government revenues were down by an average of around £10bn a year (increasing from 5 to 15 over the coming years).

The budget changes are therefore all about making cuts to spending in 2019-20 in order to save the surplus demanded by his controversial law. But this is complicated by another apparent imperative to limit the cuts to spending overall. So key policies are around switching expenditure.

You can see this on the OBR chart below – don’t worry about the detail. Increases to spending in 17-18 and 18-19 are mirrored by reductions to spending over 19-20 and 20-21. The yellow and light and dark blue are the main offsetting changes. (NB there has still be an overall hit to spending, though mainly in the last year).

bud16_policy

Investment spend (light blue) is a good example. As Robert Chote the head of the OBR sarcastically emphasised

… he has moved £1.6 billion of planned departmental capital spending out of 2019-20 and into the previous two years, which the Treasury describes as “accelerating investment plans”;

So we are the accountants, not the builders.

Then the main switch is yellow (‘delay to CT quarterly payments measure’); over to Mr Chote:

… he has delayed by two years the decision he announced in July to make large companies pay corporation tax three months earlier than they do now. The Treasury says it is doing this “to give businesses more time to prepare”. It also shifts £6 billion of tax receipts into 2019-20 and £3.6 billion into 2020-21, out of the previous two years. But it has no impact on receipts thereafter;

But even then things don’t quite add up to meet the surplus imperative. So we have the green box:

£3.5 billion of as-yet unidentified departmental cuts to be delivered by an ‘efficiency review’ that will report in 2018;

These changes therefore permit the surplus held fast at £10bn in 2019-20.

For clarity (I hope), here are the forecasts for 17-18 and 19-20 compared (note that a +ve sign corresponds to something that increases borrowing):

17-18 19-20
Weaker economy +6 +13
Departmental spend +2 -2
Capital spend +1 -2
CT switch +6 -6
other +1 -3
Total measures +9 -13
Change in borrowing +15 0

The reality is that any such exercise is pure fantasy anyway.  The chancellor is still planning (and boasting about) a fiscal consolidation unknown in a century and the toughest in the OECD. As last parliament, this will ensure that growth and revenues will repeatedly fall short over coming years. There will be no surplus on the present course.

But even if we grant this fantasy future, these policy machinations show the ludicrous side-effects of the surplus law in the meantime.

The whole thing is madness in pursuit of political imperatives, way removed from the needs of the economy and normal people.

One Response to #Budget2016 arithmetic made simple: the madness of George’s surplus rule

  1. Another graph for Nicky Morgan: Public service cuts make budget inequality even worse
    Mar 23rd 2016, 4:53 pm

    […] arithmetic he needs to find another £4.4bn to plug the gap from the benefits u-turn (although as we have pointed out elsewhere, the impact of these cuts on the economy means that this arithmetic can be very […]