If Boris Johnson wins MPs’ backing for a December election, he will be able to campaign on lavish promises of higher spending without owning up to the deteriorating outlook for the UK’s public finances.
The decision to pull the Budget — previously scheduled for November 6 — means an election would take place without new forecasts from the Office for Budget Responsibility to frame a debate on what the UK can afford.
James Smith, research director at the Resolution Foundation, a think-tank, said the delay was “bad news for democratic debate” as the UK was now “heading for the polls without up-to-date forecasts for the health of our economy and the public finances”.
The outlook has worsened significantly since the OBR last published forecasts, in March. Then, the fiscal watchdog expected GDP growth to slow to 1.2 per cent this year before picking up to 1.4 per cent in 2020 as Brexit uncertainties dissipated.
Now, global growth has slowed and Brexit uncertainty is set to depress business investment and productivity throughout 2020. Even with a deal, another cliff edge looms if the UK and EU cannot agree terms of trade by the end of the transition.
The average of independent forecasts compiled by the Treasury shows economists now expect GDP growth of just 1 per cent in 2020.
This worsening outlook has big implications for the public finances, which will be compounded by the planned increase in spending and by new demographic projections showing the UK population is growing more slowly than thought.
The Institute for Fiscal Studies believes the budget deficit will rise to around £52.3bn in 2021-21, more than double the £21bn forecast by the OBR in March, with the chancellor all but sure to miss his 2 per cent deficit target.
Paul Johnson, the IFS director, said that while there was enough independent information available to judge whether election promises were fiscally sustainable, “without the official stamp of the OBR people will be able to pick and choose”.
Delaying the budget does not yet present practical problems, chancellor Sajid Javid has already set short term spending plans and would have struggled to make big changes to tax policy, given the government’s lack of a parliamentary majority.
“If they had had a budget, it would have played much the same role as a manifesto,” said Paul Johnson, director of the Institute for Fiscal Studies.
But the delay leaves the OBR with a dilemma: it is under a statutory duty to publish two forecasts in each year. For now, it can afford to wait, but its last forecasts are already manifestly out of date and its position will become steadily harder to sustain.
A spokesman left open the possibility of the OBR breaking with precedent and publishing a forecast without any action from the chancellor, if the stasis in parliament persists. “We’re thinking about what our next steps are,” he said.
However, while the OBR can in theory publish its five-year outlook without any policy statement from the chancellor, it will be difficult to do so in practice — until the government sets out its intentions for tax and spending, publishes a new fiscal framework and gives more detail on the kind of trade deal it is likely to reach with the EU as a basis for long-term economic relations.
