George Osborne forecasts budget surplus by 2018 and says plan is working
Autumn statement outlines plan to use lower borrowing to reduce debt
Britain’s chancellor of the exchequer George Osborne and chief secretary to the treasury Danny Alexander leave for the House of Commons ahead of the dilivery of the annual autumn financial statement.
George Osborne has forecast that Britain will run a budget surplus by 2018 for the first time since the millennium as he declared in his autumn statement that “Britain’s economic plan is working”.
However the UK chancellor also promised more “difficult decisions” to repair the public finances.
Shadow chancellor Ed Balls responded by claiming the government had taken on more debt in the past three years than Labour did during its previous 13 years in power and that a tiny minority was experiencing the recovery.
In stark contrast to his budget in March – which came just after the weak economy was stripped of its triple-A credit rating – Mr Osborne unveiled the biggest upgrade to official growth forecasts since the millennium.
The office for budget responsibility has raised its growth forecast for this year from 0.6 per cent to 1.4 per cent, and for next year from 1.8 per cent to 2.4 per cent. It also revised the following three years a touch lower, to 2.2 per cent, 2.6 per cent and 2.7 per cent in 2017.
The office now expects unemployment to fall to 7 per cent in 2015. In March it did not expect this to happen until 2017. The Bank of England has said it will not think about raising interest rates until this threshold is reached.
Britain’s unexpectedly strong recovery over the past six months has also filtered through into much better forecasts for the public finances.
The government will borrow £111 billion (€133 billion) this year according to the office for budget responsibility, down from the £120 billion forecast in March, and will run a small cash surplus in 2018-19 after almost a decade of austerity.
The forecast for the structural deficit is little changed since March, however, because the office for budget responsibility has deemed the latest upgrades to be the result of a cyclical upswing.
Mr Osborne is also failing to meet his fiscal rule to see the burden of public debt start to fall in 2015-16.
The economic judgment he has made is to use lower borrowing to reduce debt rather than to offer tax cuts or spending increases. To pay for some of the measures in the autumn statement, the chancellor cut government spending by £1 billion this year and in the following two years.
Mr Osborne had already trailed many of yesterday policy announcements, including free school meals for all infants, more generous income tax allowances for some married couples and limits on energy bill rises.
He has also announced a higher state pension age for young people.
He said working pensioners would be allowed to make voluntary national insurance contributions and in return would receive a higher state pension.
Mr Osborne confirmed that rises in the state pension age would come forward to 68 in the mid-2030s and 69 in the mid 2040s.
He also unveiled a new set of tax avoidance measures, which he said would raise £9 billion over the next five years.
On the housing market, he said that from April 2015, foreigners who sell residential property in the UK would have to pay capital gains tax.
Jobless young people who have left school at 16 without many qualifications will have to take training courses if they want to keep benefits.
He promised to remove employers’ national insurance contributions for young people under 21 from April 2015.
Mr Osborne also abolished stamp duty for shares traded on exchange traded funds.
Mr Balls said the government had no right to be pleased with its performance because it was rewriting economic history. “You used to say that you would balance the books in 2015, now you want us to congratulate you for saying you will do it in 2019,” he said in his Commons speech.
– Copyright The Financial Times Limited 2013