Improved fiscal outlook for the chancellor as he prepares the Spring Budget
The Office for Budget Responsibility (OBR) is expected to provide some “fiscal cheer” for the chancellor, with a forecast showing greater growth for the economy and lower borrowing costs.
According to the Ernst & Young ITEM Club, forecasted GDP figures for 2017 are expected to be revised upwards, from 1.4 per cent to 1.6 or 1.7 per cent.
Public sector net borrowing in 2016/17 is expected to have fallen by £3bn to £65bn, with better-than-expected tax receipts cited as credited with the saving.
Read more: Industry groups call on the chancellor to cut businesses some slack
“The OBR will paint a marginally better picture of the UK economy and public finances in the short term, but fiscal policy faces major challenges on both the revenue and spending sides in the longer term,” says Martin Beck, senior economic adviser to the EY ITEM Club.
“However, the continued robustness of the economy and lower-than-expected public sector borrowing mean that there is little pressure on the chancellor to use fiscal levers to support activity or fill any fiscal ‘black hole’”.
The chancellor, Philip Hammond will deliver the government’s Spring Budget on 8th March. The EY ITEM Club says it expects to see the chancellor take steps towards fulfilling the Conservative party’s manifesto commitment of raising the tax free personal allowance up to £12,000.
They suggest an increase in the personal allowance up to £11,800 and a rise to £46,500 for the 40 per cent tax threshold would keep the government on track to meet its manifesto commitments.
Read more: The last Spring Budget will be on 8 March 2017 – before Article 50
Pressures on the NHS, and measures to ward off concerns about a “cost of living crisis” could result in a more relaxed attitude to fiscal tightening in particular areas, according to the report.
“Despite the chancellor’s assertion that 'Budgets should be boring' it’s hard to believe that this will be an event completely devoid of policy measures,” said Jason Lester, EY’s managing partner for tax.
“The Government will be acutely aware of the need to offset the squeeze on household incomes caused by higher inflation and although we may not get fireworks until the autumn, we should at least be warmed up by a few sparklers.”