Here is the table summarising the growth projections used in the 2010 Budget(Table Removed):
Here is the summary of the GDP forecast from the Office for Budget Responsibility (OBR), released this morning(Table Removed):
As you can see, the growth projections in the new OBR report are considerably more pessimistic in 2011 and 2012. They are closer to the kind of estimates coming from independent forecasters. While this won't feel much like good news, it is better that the Government will now have to base their plans on a more cautious expectation of what is to come.
There has been some good news recently as borrowing has come in lower than expected this year, but if growth isn't as strong as expected in the future that will evaporate very quickly.
High spending is the source of all the borrowing and will continue to undermine the trend rate of growth, a phenomenon a recent TPA research note looked at. Spending cuts are the key to improving the state of the public finances. We have released a short guide to the TPA's proposals for spending cuts, and there are more details in the book How to Cut Public Spending.
We have issued the following comment.
Matthew Sinclair, Research Director at the TaxPayers’ Alliance, said:
“These new figures show that the public finances may be in even bigger trouble than the Government figures acknowledge, as growth is not expected to match the rates expected in the Budget forecast. It was always madness for the Treasury to be forming policy on the basis of a trampoline back to growth, when so many of the mistakes that led to the problems we are facing today were the result of politicians and bankers being too optimistic. Taxpayers will be concerned that the politicians’ failure to properly face up to the scale of spending cuts necessary will mean bigger tax bills, possibly even a disastrous VAT hike which would hit the poor twice as hard as the rich. Tax hikes would further undermine the prospects for growth, spending cuts are needed so that businesses can invest in the confidence that their returns tomorrow won’t face even higher taxes to pay for today’s borrowing.”