By Vivienne Russell | 5 December 2013
The UK public finances will be in surplus by 2018/19, Chancellor George Osborne said today as he revealed a host of upward revisions to the Office for Budget Responsibility’s fiscal forecasts.
According to the Autumn Statement, underlying public sector net borrowing – which excludes the impact of the Royal Mail pension scheme and the Asset Purchase Facility transfer – is set to fall to 6.8% of gross domestic product this year, down from the 7.5% forecast by the OBR in March. It is then predicted to fall to 5.6% next year and go on declining, reaching 1.2% in 2017/18.
‘And by 2018/19 on this measure, the OBR do not expect a deficit at all,’ Osborne told MPs.
‘Instead, they expect Britain to run a small surplus.
‘These numbers mean that the government will meet its fiscal mandate to bring the structural current budget into balance, and meet it one year early.’
In cash terms, borrowing is set to fall from £111bn this year – £9bn less than March forecasts – to £23bn in 2017/18 and for the public finances to show a small cash surplus in the following year.
But the chancellor stressed that this surplus would only be achieved if the government stuck to its austerity plans.
Debt is set to start falling in 2016/17, one year earlier than forecast, Osborne said, although he noted that this was a cyclical improvement and the fall in the structural deficit has not improved.
He announced that the government would review its fiscal framework, as set out in the Charter for Budget Responsibility, presenting an updated charter alongside next year’s Autumn Statement. This review will consider whether fiscal credibility can be further enhanced by a stronger Parliamentary commitment to the path of consolidation in 2016/17 and 2017/18.
Growth forecasts have also been revised up, with the OBR now expecting growth this year to be 1.4%, more than double the 0.6% it predicted in March.
Next year, economic growth is expected to reach 2.4% (up from 1.8%) and expectations have been revised up for each of the following four years, peaking at 2.7% in both 2017 and 2018.
The OBR said the UK economy had picked up more strongly than expected this year thanks largely to an increase in private consumption and housing investment, although it added that business investment and net trade ‘have continued to disappoint’.
This year’s rate of recovery was unlikely to be sustained next year, the OBR said.
‘While consumer confidence, credit conditions and the housing market have improved, productivity and real earnings growth have remained weak,’ its report states.
‘Ultimately, productivity-driven growth in real earnings is necessary to sustain the recovery. So we expect quarterly GDP growth to slow into 2014, and then to strengthen gradually as productivity picks up. The outlook for productivity growth is the key uncertainty confronting all UK forecasters.’