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Back in Healey’s time under Gordon Brown, there was no OBR. At the time, it was not unknown to choose late budget math problems with an optimistic tweak of a forecast, a date change in the economic cycle, or a stronger rate of long-term growth.
The OBR’s judgment is now crucial – the extent to which it agrees with projected social savings or even the importance it places on stronger GDP figures is now important.
The bigger point here is that the Chancellor must be shocked by the contrast between the sheer power of Brown’s Treasury to do what he wanted, and the reality of what he currently faces: the constraints of the OBR, manifesto red lines, bond markets, significant debt and an energy shock.
There are reasons to postpone some of the toughest decisions about this budget, such as how to fund desired increases in defense and social care spending. The economic outlook could improve if the Iran war settles sometime in the coming months, and according to revised statistics the OBR may also have reason to reconsider last year’s downgrade on long-term economic growth.
There is a conceivable path to a forecast next year with higher growth, lower inflation and lower debt interest costs, which could plausibly improve public finance forecasts by tens of billions.
This would be a much more pleasant basis for deciding the pace of those big ticket expenditures. It can also be a tempting option for anyone considering an election. Former Treasury officials lament: “There is always a reason for postponement.”
Expect the Chancellor to praise the resilience and strength of the UK economy and seek to maintain it, spreading growth geographically. His key judgment, however, will be a balance between extra financial and economic support and the risk of still higher borrowing costs.
He will try to provide breathing. It may be necessary not only for households and families, but for creation itself.
Top image credit: Reuters/Getty Images
