The outlook for government borrowing has barely changed. The Office for Budget Responsibility (OBR) now expects public sector net borrowing to fall from £126bn in 2011-12 to £21bn in 2016-17 – close to the fall from £127bn to £24bn it expected in the Autumn Statement.
This reflects the fact that the Budget was, as Mr Osborne said, "fiscally neutral". It gave away a net £1.9bn in 2012-13 and £1bn in 2013-14, but tightened by £2bn in 2014-15, largely due to the freezing of income tax allowances for the elderly.
It also reflects the fact that the OBR has not changed its outlook for growth. It expects real GDP to grow by an average of 2.3 per cent a year between 2011 and 2016, the same as it expected in November.
With the outlook for borrowing unchanged, the questions about it remain.
One is: can Mr Osborne hit his self-imposed targets of retaining the government's AAA credit rating and of achieving a cyclically-adjusted surplus on the current budget by 2016-17?
One problem here is that the latter is based upon cuts in public spending that haven't happened yet; departmental spending is forecast to fall 3.1 per cent between 2013-14 and 2016-17, having risen this year and next. Such cuts will be called into doubt if growth falters. Ian Stewart, chief economist at Deloitte, says the margin for error is "small".
A second problem is that these forecasts require massive gilt issues. The government expects to have to sell £166.4bn of stock in 2012-13, and probably over £100bn in each of the following two years. This would mean the stock of gilts rising by one-third in just three years. With the Bank of England showing little intention of greatly extending quantitative easing, the private sector will have to absorb these. Whether it can do so without a rise in yields – especially if the economy recovers and thus reduces the demand for safe-haven assets – is doubtful.
