The government's posturing of being fiscally responsible, its fiscal rules, its minority government and Brexit have all combined to create a dense, foggy swirl of budgetary pressure for the Chancellor, who has reaffirmed his commitment to cut the deficit, currently about 3% of national income, to below 2% by 2020-21. The OBR has forecast that the deficit will, indeed, be reduced to 1.3% of national income by 2020-21 and so the government seems to be on track to achieving its goal. But everyone should be clear about what this means. It means more austerity, whatever the ultimate detail, the government must dress up in sheep’s clothing a clever budget of spending cuts and tax rises (austerity) that will drastically reduce the difference between what it earns and what it spends.
This will be made more difficult as the economy faces downgraded productivity growth estimates, which will slow growth — the OBR have downgraded growth forecasts to 1.5% in 2017 from the 2% estimates that were made in March, and wages. Growth estimates have also been cut to 1.4% in 2018, 1.3% in 2019 and 2020, after which they will experience modest increases to 1.5% in 2020 and 1.6% in 2021. Exasperating this will be the continuing economic uncertainty created by Brexit and pressure from opposition and public sector employees to increase public sector spending, which has seen cuts of almost 40% to some government departments (e.g. Justice, HMRC, DEFRA).
The Budget announcement and debate about it will continue until it is swamped into the background by speculation and debate about the next Budget. We will see analysts at the IFS and other think-tanks cranking the numbers that will allow us to see more clearly how much the spending will cost, how much the tax changes and other incentives will raise, who will be the losers and who will be the winners. I am looking forward to seeing those numbers and looking forward even more to seeing whether a continuing commitment to fiscal rules (and the ensuing austerity) will be a politically viable strategy for this minority government.