The first ever OBR report, published on Monday, said the UK’s wealth will grow by 2.6 per cent in 2011; the figure predicted by the Treasury in March under Labour was between 3 and 3.5 per cent.
The first independent (though government-sanctioned) calculation of government monies for decades, the report enabled the coali- tion government to bolster their claims that Labour’s handling of Britain’s finances was worse than expected.
However, the OBR outlook is not as bleak as speeches by the Prime Minister, Deputy Prime Minister and Chancellor might have previously suggested.
The overall government debt will be slightly less than the March Budget predicted. The OBR has calculated the
total debt to be 62.2 per cent of gross domestic product (GDP) as opposed to Labour’s March estimate of 63.6 per cent.
Also, borrowing will be less, at 10.5 per cent accord- ing to the OBR, against the 11.1 per cent from the March forecast.
The calculation by the OBR is a total of £155 billion borrowed in this finan- cial year (compared with Labour’s prediction of £163 billion).
The biggest difficulty for the coalition will be the structural deficit – that part of the deficit on which growth has no effect.
The OBR estimates this at 8 per cent, higher than the March Budget which had a figure of 7.3 per cent.
With the projected bor- rowing of the government being less than expected and growth also less, there is speculation that public sec- tor pensions will be cut.
The OBR will also publish other figures in tandem with George Osborne’s Budget on June 22nd.
Sir Alan did not think ‘permanent damage’ had been caused to the economy by the recession
Chancellor’s intended cuts and spending.
The OBR was set up by the Conservatives while in opposition.
It was intended to be an independent measuring tool of government spending with access to all Treasury figures and to the Chancellor himself.
“We have changed the way Budgets are written, by establishing a new Office for Budget Responsibility, which will stop any chancellor fiddling the figures ever again the new government in the Queen’s Speech.
OBR chairman Sir Alan Budd was an original mem- ber of the Monetary Policy Committee.
The three-person Budget Responsibility Committee (BRC) will not be able to dictate that the Chancellor take any action.
However bad the figures may seem, Sir Alan is reported to have said he did not think “permanent damage” had been caused to the economy by the recession. He said that the changes to the forecasts were “all within the normal range of uncertainty”.
Patrick Minford of the Institute of Economic Affairs told the BBC that the OBR’s report was a “sensible statement of the prospects as we see them at the moment”.
Whatever the specific numbers are, the Budget next week will have to announce some savage sav- ing strategies, whether they be in shrinking pensions, raising taxes, cutting public spending, freezing pay, or dropping benefits.
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