Budget 2015: Public finances face a bumpy ride

 

I always remember former chancellor Alistair Darling commenting on one of Osborne’s early budgets that he recognised some of the transport announcements because he had announced them himself not only as chancellor but also as transport secretary.

So I tend to look at Budget statements with a touch of cynicism. They are political documents backed up by huge chunks of verbiage, regurgitated statistics, retread announcements, the occasional headline-grabbing idea and dribbles of money going for small schemes.

Public expenditure for next year will be £743bn of which transport is £29bn and health £141bn so many of the funding schemes announced are miniscule in comparison.

Even just 1% of the total budget adds up to £7.4bn. A million quid here and there is peanuts, the kind of small change the Treasury leaves in the biscuit tin. In addition many of the announcements, especially in transport and initiatives like the Northern Powerhouse we already know about. The plus side is that transport is clearly a major priority for this, and the next, government.

So stripping away all the flim-flam, bungs for this road scheme and that railway and money for church roofs in the Budget what does it actually mean for local government and the public sector?

For this answer I consign the Budget document to the online filing cabinet and turn instead to the Office for Budget Responsibility’s own report which was published at the same time.

The OBR says the Budget is not expected to have ‘any material effect’ on the economy. However it’s a different story for the public finances. It predicts a ‘roller coaster profile for implied public services spending through the next Parliament’ because of a much tighter squeeze on spending in the years to 2019 - in fact bigger than anything seen in the past five years - followed by ‘the biggest increase in real spending for a decade in 2019/20’ (curiously the time of the next general election).

Under the Government’s plans by 2019/20 public spending as a percentage of GDP falls to 36%, marginally higher than the post-war low of 35.8% in 1957/8 and 35.9% in 1999/2000

The Government envisages that borrowing is lower every year to 2018-19 than in the OBR’s last forecast, that the new fiscal mandate is met with room to spare in 2017-18, public spending as a share of GDP no longer falls to a post-war low in 2019-20, and that the debt-to-GDP ratio falls a year earlier in 2015-16.

By 2019/20 the OBR reckons that public sector net borrowing has now fallen to 5% of GDP, half that what it was in 2009/2010 when it peaked at a post-war record of 10.2% and is forecast to fall to minus 0.3% by 2020, a total of £172bn. However only half of that planned reduction has so far been completed with the burden of cuts falling on welfare and what the OBR calls ‘day-to-day spending on public services and administration’, the latter of which implies cuts of £65 billion or 70% of the total improvement in the public finances.

So fasten your seat belts. We’re in for a bumpy ride…

 
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