How is this to be achieved? What is striking, to us at least, is that at the time of the 2009 Pre-Budget Report, the structural deficit was forecast to narrow by 5.4 percentage points over the same three years. At the time of the 2009 Budget, it was forecast to narrow by 5.3 percentage points. So, on that basis, it would seem that today’s Budget contained relatively little in terms of new fiscal measures. If the structural deficit is to narrow by 5.3 percentage points over the next three years, we need around £75 billion of savings in today’s money. Today, the Chancellor fleshed out around £19 billion of tax rises, and around £20 billion of spending cuts. On that basis, we have detail on just over one half of the necessary measures. Just over half of the spending cuts are to come from ‘efficiency savings’, which is never encouraging, while just over £3 billion is to come from limiting increases in basic pay in the public sector to just 1% in each of the next two years – regular pay growth in the public sector is currently running at 4.1%, so that would be some achievement.

 

Although the Chancellor has now given us more detail on how the structural deficit is to be cut, the marginal impact of any new measures is more or less zero. The key table in this respect from the 236-page document seems to be Table C5. The first nine rows of that table show how, and why, projected deficits have been revised since Budget 2009. Row 6, for example, shows how ‘revisions and forecasting changes’ have affected the projected deficit in current and future years.  Some of the numbers in this row are quite large. For example, the £11.0 billion improvement in public finances during the current year, relative to last year’s PBR, is carried over into 2010/11. In fact the improvement due to ‘revisions and forecasting changes’ in 2010/11 is even bigger, at £14½ billion. But what of the impact of this year’s budget? Well, summing out to 2013/14, it is precisely zero. The ‘effect of Budget 2010 policy decisions’ is to raise the deficit by £1.5 billion in 2010/11, but cut it by £0.5 billion in 2012/13 and then cut it by £1.0 billion in 2013/14.

 

This debate is sure to continue on the Money Supply blog, produced by the Financial Times.