Government borrowing on the latest figures was up on last year, despite the economic recovery. By a rough count, the Chancellor has £36bn of further cuts to make after the next election. If tax revenues don’t start climbing soon, that figure will head north. In the meantime, his backbenchers want tax cuts and he is facing pressure from the NHS for relief funding. And, now he has announced a proposal for a new high-speed rail line. Does he know something we don’t?
It may be that Osborne’s internal reckoners tell him that growth is stronger than the Office for Budget Responsibility (OBR) forecast at the Budget. Alongside the OBR’s central forecast there were also some alternative scenarios. The most bullish was based on growth of 3.1 per cent this year and 3.3 per cent next year. Hitting those numbers would mean that public sector net borrowing starts falling quicker and that the debt to GDP ratio is in decline by next year, one year earlier than forecast. By the end of the next Parliament it may even be below 70 per cent. That’s a big change.
The Chancellor could be sitting on even better news. Mark Carney said at Mansion House on 12th June that the economy is expanding at an annualised rate of 4 per cent. If we look underneath the headline borrowing figures from last month (excluding the impact of things like the Asset Purchase Facility) then we see that tax revenues are up by a similar rate on last year. While income tax receipts are up by a much smaller amount, VAT, stamp duty and corporation tax are picking up the slack. The OBR said at Budget that there was a 20 per cent chance of hitting a current surplus in 2015-16. Those odds may have improved, which would give the Chancellor the flexibility to announce more spending while sticking to his target of achieving a surplus by 2018-19.