150318 Borrowing forecasts
  • Forecasts versus reality. How far off the mark are the Government’s official borrowing forecasts? The above graph should give you some idea. It shows the final borrowing totals – with the exception of 2014-15, which is still an estimate – for the past ten years, alongside the original forecasts made under Labour and the Coalition. In Labour’s case, I found those forecasts by sifting back through various Budgets: the figure for 2004-05 comes from Budget 2000, for instance. All of the Coalition forecasts are taken from the Office for Budget Responsibility documents that accompanied the Emergency Budget in June 2010.
  • Brown’s extra £billions. In all but two of the past ten financial years – 2010-11 and 2011-12 – the Government has ended up exceeding its original expectations for borrowing. In this Parliament alone, George Osborne is likely to borrow about £100 billion more than the OBR forecast in 2010. Or, as the Guardian puts it in its editorial this morning, “borrowing is not just a little higher than it was meant to be under Plan A but three times the intended level.” But did they say similar for Gordon Brown? After all, Labour borrowed a full £280 billion more in their final term than they had originally planned. Even in the three years before the Crash, Brown & Co. surpassed their original forecasts by £71.6 billion.
  • Is it because all Governments spend too much? Recent governments aren’t the only ones to have borrowed more than they foresaw, but I’ve focused on the past ten years because they offer a particularly instructive mix. In the first four years of the decade, Brown was determined to spend ahead of the Exchequer’s income, in the name of his precious “investment”. In the middle two years, it was a combination of that and a precipitous decline in tax receipts brought about by the financial crisis. Whereas, in this Parliament, Osborne has largely stuck to his programme of spending cuts, but tax revenues have proved measlier than he would have hoped. It’s not always as simple as excessive spending.
  • The first lesson. So, governments borrow more than they say they will – where’s the surprise in that? And yet we still cling to Budgets as though they contain universal truths. I’m guilty of it myself. Yesterday, I suggested that Osborne’s decision to borrow £16 billion more in 2019-20 was one of the most significant in his statement, and so it was in a way. But it was also one of the most insignificant. Anything could happen between now and 2019-20: another recession, a change of policy, even a Labour government. The latest forecasts aren’t likely to last a year, let alone another five.
  • The second lesson. This doesn’t mean that the official borrowing forecasts are meaningless. They are a baseline for fiscal policy, as well as a yardstick for politicians’ intentions. But legislators and commentators still ought to treat them with caution. Either accept their essential uncertainty, as the Office for Budget Responsibility does through its fan charts. Or concentrate on numbers that are more knowable and, for the Government, more controllable – such as public spending.