Budget 2017: Hammond cautious despite borrowing '˜bonus'

CHANCELLOR PHILIP Hammond was given Budget wriggle room by the lifting of some of the post-referendum gloom over the British economy.
Hammond was handed a Budget bonus but resisted temptation to spendHammond was handed a Budget bonus but resisted temptation to spend
Hammond was handed a Budget bonus but resisted temptation to spend

The Office for Budget Responsibility said its forecast for public sector borrowing was now “significantly lower” than it was in November and dramatically upgraded its growth figure for 2017.

However, the OBR also revised down its forecasts for the economy in each of the next three years with growth falling to 1.6 per cent in 2018 and edging up to two per cent by 2021.

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Borrowing for this financial year was due to come in at £65.2bn but that has fallen in the latest forecasts to £51.7bn.

The OBR also forecast borrowing would continue to fall faster than expected for the next three years and Mr Hammond used some of that new-found flexibility to find new money for areas including social care and the health care while ensuring the Budget deficit continues to fall.

Mr Hammond’s Budget pledges were costed at an extra £3.1bn of spending in the coming financial year.

Under the cover of the Brexit vote, Mr Hammond last year ditched predecessor George Osborne’s plan to eliminate the deficit in Government spending by the end of the decade.

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The latest OBR figures show that the Government will still be borrowing more than £20bn at the next General Election.

It said the economy’s recent resilience was underpinned by “stronger-than-expected” consumer spending, which boosted tax receipts.

But it warned that consumer spending growth could not “continue to outpace income growth by such a margin indefinitely”.

“Looking ahead, we expect real GDP growth to moderate during the first half of 2017, as rising inflation squeezes household budgets and real consumer spending,” it added.

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Mr Hammond set out new targets for the Government finances in his Autumn Statement but the OBR’s latest report cast doubt on whether they would be hit.

“The Government remains on track to meet its targets for the structural deficit and public sector net debt,” the OBR said.

“But the Government does not appear to be on track to meet its stated fiscal objective to ‘return the public finances to balance at the earliest possible date in the next Parliament’.

“The deficit falls little in 2020/21 and 2021/22, while the ageing population and cost pressures in health are likely to put upward pressure on the deficit in the next Parliament.”

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The Resolution Foundation thinktank said 80 per cent of the £122bn of extra borrowing the OBR had forecast in November in the aftermath of the Brexit vote remained in place despite the rosier outlook.

Director Torsten Bell said: “The widely anticipated ‘Brexit rebate’ has turned out to be far weaker than many expected. While in the short-term the economy is looking rosier than the OBR thought back in November, the official forecaster has stuck to their view that the longer-term outlook remains extremely challenging.

“The Chancellor was right therefore to bank his modest windfall in the face of economic uncertainties.

“While the public finances have improved slightly, the family finances picture has actually darkened since last November.

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“Expectations for lower productivity and pay growth, coupled with rising inflation, mean that average earnings are on course to remain below their pre-crisis levels by 2022 – representing an unprecedented decade and a half of lost pay growth.

“That’s why the Chancellor was wrong not to think again and reverse benefit cuts for low and middle income families that are taking place in the coming years.”

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