Government cuts debt forecasts after better GDP figures

Government cuts debt forecasts after better GDP figures

Minor upgrades to the UK's GDP growth outlook have allowed the government to reduce borrowing forecasts as the Chancellor Philip Hammond announces potential changes to the tax system.

In the Budget presented today (March 8), Mr Hammond said Office for Budget Responsibility (OBR) forecasts for GDP growth have been revised since November's Autumn Statement.

The OBR said UK GDP will rise 2 per cent in 2017, compared with a 1.4 per cent prediction last year.

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However, subsequent years have been revised down.

The economy is now predicted to grow 1.6 per cent in 2018 and 1.7 per cent in 2019 - lower than the 1.7 per cent 2.1 per cent OBR estimates last year. In 2020, growth will be 0.1 percentage points lower, at 1.9 per cent.

However, despite the reduced GDP growth in upcoming years, public sector borrowing both in nominal terms and as a percentage of GDP will now be lower.

Government borrowing from the next fiscal year to 2020/21 will now be marginally lower compared with November figures, ending with a predicted £20.6bn in the final year. However, this year's borrowing will be substantially lower - some £16.4bn down on the previous forecast - due to the OBR removing a one-off cost and higher than expected tax revenue.

This now means debt as a proportion of GDP will not cross the 90 per cent barrier in 2017/18 - as was thought in previous estimates. It is now predicted to peak at 88.8 per cent that year, before then falling.

However, all forecasts remain less positive than the OBR estimates made under previous chancellor George Osborne, prior to the UK's decision to leave the EU. Despite borrowing estimates being lower than predicted in last year's Autumn Statement, the figure is still £100bn higher than that given in the 2016 Budget, Mr Hammond said.

Similarly, GDP forecasts this year remain lower than predictions made 12 months ago.

Mr Hammond said he would not use the additional headroom given by estimate revisions to increase borrowing. He instead unveiled "budget neutral" tax policies that would increase revenue to fund additional spending decisions.

This included a consultation on National Insurance Contributions (NIC) - with a view to harmonising amounts paid by employees and the self employed.

The chancellor also said he would raise revenue by reducing the tax-free dividend allowance from £5,000 to £2,000 from April 2018.

OBR GDP Growth Forecasts (%):   
 Autumn Statement 2015Budget 2016Autumn Statement 2016Budget 2017
2021  22
Source: Office for Budget Responsibility