NIESR Comment on 2016 Budget
17 Mar 2016 12:48 PM
Earlier on yesterday the Chancellor unveiled the 2016 Budget at the House of Commons. Here is our Principal Research Fellow Jonathan Portes comment from yesterday:
"In August 2015, I noted that the government's fiscal framework contained serious design flaws, and was "simply incredible." Today's Budget shows that assessment was accurate. The OBR had already assessed, in the Autumn Statement, that the government would breach the so-called welfare cap. Today the OBR reaffirms that assessment and also states that the government has failed to hit its other short-term target, for the debt-GDP ratio to fall in every year of this Parliament. Meanwhile, the OBR states that the government is on target to deliver a surplus in 2019-20 - but only because, as the OBR put it " by rescheduling capital investment, promising other cuts in public services spending and shifting a one-off boost to corporation tax receipts into that year". The point of a fiscal rule is to boost credibility - meeting it only by the use of one-off accounting gimmicks entirely defeats the point.
It is also notable that the main changes to today's economic and fiscal forecasts are not the result of weakness in the global economy or uncertainty in financial markets, although these do represent significant risks. Instead, as the OBR states, "the most significant forecast change we have made since November has been to revise down potential productivity growth". The continued weakness of UK productivity performance remains a serious concern.
Finally, it is worth noting that delivery and implementation failures related to welfare changes, particularly related to disability benefits, continue to push up OBR forecasts of welfare spend, as I previously noted. It is partly to offset these failures that the Government has chosen to make significant cuts, worth about £1.2 billion to payments in respect of "aids and appliances" to claimants of the new Personal Independence Payment. Looking to the future, the OBR rightly expresses "significant concern" over the modelling of the costs of Universal Credit, which it regards as highly unreliable at present. "
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