Economists predict £8bn 'windfall' for chancellor

21 Mar 11
The Treasury could be in line for an £8bn ‘windfall’ this year because of higher than expected tax receipts and lower government spending, leading economists said today.

By Lucy Phillips

21 March 2011

The Treasury could be in line for an £8bn ‘windfall’ this year because of higher than expected tax receipts and lower government spending, leading economists said today.

Ahead of Wednesday’s Budget, the Ernst & Young Item Club forecast public sector net borrowing to come in at £140.2bn for the year to the end of March, £8bn lower than the Office for Budget Responsibility’s forecast of £148.5bn.

The stronger figures were attributed to a better than anticipated rebound in tax receipts as well as restraint on current and capital spending.

But the Item Club, which is the only non-governmental economic forecasting group to use the Treasury’s model of the UK economy, warned Chancellor George Osborne against any premature ‘giveaways’ in the March 23 Budget.

Andrew Goodwin, senior economic advisor to the Item Club, said: ‘So far the fiscal plan is on track, which is good news for the chancellor. But the Treasury needs to resist temptation to utilise the windfall to provide a little sweetener to the bitter pill of fiscal retrenchment – it is still very early days on the long and challenging road to fiscal balance.’

The Item Club is predicting weaker than anticipated growth in the medium term, following a recent global surge in commodity prices, leaving ‘a very small margin for error’ in the government’s plan to balance the public finances.

Goodwin said its forecast pointed towards a Budget this week that would be ‘light on major policy announcements’, mainly concentrating on revenue-neutral strategies, designed to promote growth.

He expected the chancellor to scrap the planned increase in fuel duty, which would be partly offset by higher oil prices and stronger tax receipts from oil companies.

Did you enjoy this article?

AddToAny

Top