The Chancellor’s deficit reduction policy has again come under pressure with news that the budget deficit for the financial year to March stood at £74bn, £17.7bn less than the previous year, but £1.8bn more than the Office for Budget Responsibility’s (OBR) forecast of £72.2bn for 2015- 16. However, commentators believe that in macro-economic terms this is a fairly modest overshoot and means that the OBR forecast could yet be vindicated.
George Osborne had pledged to return the UK economy to surplus by 2020, with the OBR forecast stating that the UK could be running a budget surplus of £10.4bn in 2019-20 and £11bn the following year. However, the Chancellor has since revised down his forecasts in a move designed to shrink the deficit more slowly, and reduce the need to introduce yet more austerity measures. In the most recent forecast, the OBR expects the deficit to be £55.5bn in 2016-17, £38.8bn in 2017-18, falling to £21.4bn in 2018-19.
Reporting on income and expenditure, the ONS said that the government received £636.2bn in income for the financial year to March, an increase of 4% on 2015. Over the same period the government spent £696.2bn, roughly in line with the previous year. Two thirds of this figure goes to central government departments, the remaining third is accounted for by expenditure on social benefits including pensions, unemployment benefit, child benefit and maternity pay, together with capital investment and the interest payments due on the government’s outstanding debt.
With weaker than expected growth from tax receipts contributing to the borrowing target overshoot, HMRC has announced that it has plans to pursue tax avoiders more assiduously in the coming year. It remains to be seen if these measures, together with the planned savings to the welfare budget, will enable the Chancellor to meet this year’s target.
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