Fresh predictions for borrowing taking account of the sharp deterioration in the public finances since the spring will be published by the government’s independent forecasting body early next month it has been announced.
Robert Chote, the chairman of the Office for Budget Responsibility, said that despite Sajid Javid’s announcement last week that he was scrapping plans for a budget on 6 November, the OBR would publish new forecasts for the public finances anyway.
The chancellor’s decision to postpone the biggest fiscal event of the year prompted speculation that the government planned to announce pre-election tax cuts without the plans being scrutinised by the OBR.
However, the watchdog’s announcement that it would update predictions made in March will ensure that the tax and spending pledges made by all parties in a possible general election campaign will be judged against what are certain to be gloomier OBR forecasts for the public finances.
In a letter to Tom Scholar, the Treasury’s top civil servant, Chote said the shape of the Brexit withdrawal agreement struck between the UK and the EU made little difference to the OBR’s forecasts but the data in the first six months of the 2019-20 financial year suggested that borrowing would be £10bn higher than previously estimated.
Chote said the likely reining in of spending in the second half of the year meant it would be misleading to extrapolate from the figures for the April to September period but added that the outlook had also been affected by a series of methodological changes and revisions to back data.
By law, the OBR has to publish two sets of forecasts each year, using a two-stage process in which it provides baseline predictions that are updated once it knows what budget measures the chancellor has planned.
Chote said in his letter that even leaving aside the impact of a new proposed Brexit deal, the “pre-measures forecast would have reflected developments in the economy since March and new information on the state of the public finances”.
He added that there had been a series of developments since the spring, including changes to the treatment of student loans and public sector pension schemes, together with a large correction to corporation tax data.
“Given the importance of these changes for public understanding of the baseline against which the government will need to judge its fiscal policy options, we believe that it would be useful to explain publicly the impact that they would have had on our March forecast, had they been known at the time,” Chote said.
The OBR announcement comes in the wake of demands from the shadow chancellor, John McDonnell, that Javid release details of the OBR’s updated forecasts and announce a new date for the budget.
Traditionally, the budget was held in the spring but Javid’s predecessor, Philip Hammond, moved to an autumn date in 2017.
The chancellor announced the biggest increase in public spending in years last month and has said that it makes sense for the government to take advantage of the historically low level of interest rates to borrow more for infrastructure projects.
While campaigning to succeed Theresa May, Boris Johnson proposed a series of tax changes, including a higher threshold for workers paying national insurance contributions and a rise to £80,000 in the threshold for paying income tax at 40%.
The OBR said: “Following the cancellation of the budget, we have decided to publish a restated version of our March public finance forecast, incorporating subsequent ONS classification and other statistical changes.
“We have written to the Treasury informing them that we intend to publish our restated March forecast on 7 November.”
