George Osborne has been forced to defend his stewardship of the economy after it was confirmed on Wednesday that he had broken two of his three key fiscal pledges from the election.
The independent Office for Budget Responsibility yesterday confirmed that debt as a proportion of GDP would rise this year, as it downgraded growth forecasts in every year to the end of the parliament.
The chancellor had already cast aside his own welfare cap in the Autumn Statement, meaning the only fiscal rule that remains intact is his pledge to return the public finances to surplus by the end of the decade.
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Osborne on Wednesday confirmed that departments would face a further £3.5bn of cuts in 2019/20, on top of those announced at November's Autumn Statement. Unions have also warned that the impact of the Budget on departments could be made more severe by plans to increase the amount they pay towards public service pension schemes.
OBR boss Robert Chote on Thursday evening put the chances of Osborne meeting his pledge to return public finances to surplus at 55%, while others have pointed out that the projections are on track largely because of technical changes like changing the date of a corporation tax windfall.
The chancellor said he had not made the commitment to a surplus as a “fetish”, but because it was necessary.
“By our own measurements and the tests we’ve set ourselves, independently assessed, we have got more to do: we’ve got more to get that debt falling; we’ve got more to do to make sure we deliver that budget surplus and I set out those actions in the Budget,” he told the Today programme.
He also noted the qualification in his fiscal pledges, that they would apply only in “normal times”, when growth was more than 1%.
But he insisted he was on track to meet the surplus target: “I’ve made adjustments to my plans to make sure debt does fall as a proportion of national income in the coming year; I’ve made adjustments to my plans to make sure we are going to live within our means and get that surplus. On welfare spending, yes, I’m the first chancellor ever to say let’s look at what we spend on welfare, let’s take action to try and keep within the cap we set.”
The well-respected Institute for Fiscal Studies economic research group will present its own analysis of the Budget on Thursday.