The Office for Budget Responsibility (OBR) has revised up its forecasts for public sector net borrowing between 2011-12 and 2015-16 by a total of £47bn since its November forecast, with almost all this rise due to increased spending.
It now expects spending in 2013-14, for example, to be £9bn, or 1.4 per cent, higher than it forecast four months ago.
These rises are much greater than the tax cuts which Mr Osborne announced: the rise in the personal allowance and cut in fuel duty will cost the Exchequer just £1bn and £1.6bn respectively in 2013-14. Overall, though, the Budget was as fiscally neutral as he promised, amounting to a net giveaway of a mere £30m over the next five years.
The increased spending is due in part to higher debt interest payments, which are in part due to higher inflation raising the pay-out on index-linked gilts. The OBR expects the government to spend £56.6bn on debt interest in 2013-14, equal to its non-capital spending on education.
But the increase is also due to higher social security and tax credit spending. This is not simply the result of higher inflation. It is also because the OBR now expects fewer people to be in jobs; it has cut its forecast for the number in employment by 200,000 for 2013-14.
These revisions highlight the fact that government borrowing is not purely under the control of Chancellors and manipulable by policy measures alone. Instead, it depends upon the state of the economy, and the outlook for this has worsened over the last few months. The OBR not only revised up its forecast for the price level, but revised down its forecast for the level of GDP growth - a combination which naturally adds to public borrowing.
Although the OBR still believes that there is a greater than 50-50 chance of the government hitting its target of eliminating the cyclically-adjusted budget deficit (excluding investment spending) by 2015, not all independent economists share its optimism. Simon Hayes at Barclays Capital warns that growth might fall short of the OBR's projections, which would add to the deficit. He says: "There is a significant risk that in the medium term the deficit does not fall by as much as the government is projecting."
