ECONOMY TO STORM BACK
Watchdogs forecast surge in growth... and offer up a £50bn windfall
WATCHDOGS gave Britain’s growth prospects a bumper upgrade yesterday, handing Rishi Sunak a £50billion windfall to kick-start the post-Covid economy.
The Office for Budget Responsibility (OBR) estimates the economy will grow by 6.5 per cent this year, much higher than its previous forecast of 4 per cent.
It was the OBR’s biggest upgrade since its creation in 2010.
Output is also forecast to be back to its pre-pandemic level by the turn of the new year – ahead of the OBR’s original expectations for the middle of 2022. This means economic scarring will be less than thought, leaving output 2 per cent smaller than it would have been without the pandemic, rather than 3 per cent.
And in a boost for Mr Sunak, it will mean the Treasury should scoop around £50billion more in taxes each year than the OBR had expected in March.
In a further relief for the Chancellor, who is trying to wrestle down borrowing following a record spending spree during the pandemic, the Treasury should be able to borrow around £35billion less per year than the watchdog had slated in March.
It was the biggest downward revision to borrowing since 1970 ‘thanks largely to stronger than expected recovery in the first half of the year’, KPMG’s chief economist Yael Selfin said.
As he unveiled his Budget to Parliament, Mr Sunak said: ‘Because of the actions we took to support our economy, we have been more successful than previously feared in preventing the long-term economic damage of Covid.’
The Chancellor wants to get Britain back into the black – meaning the Government will no longer need to borrow for everyday spending – by 2024.
He has already announced sweeping tax rises to help reach this goal, hiking corporation tax, National Insurance contributions and dividend taxes and freezing income tax thresholds.
But any spare cash the Treasury receives from tax receipts over the coming years that is not spent could go into a war chest for economic hurdles that may crop up – or even used to bring down taxes ahead of the next election.
The OBR thinks Mr Sunak will be on course to have a surplus of £25billion by 2024.
Thomas Pugh, an economist at accountancy firm RSM, said the Chancellor’s plans gave ‘some scope for a pre-election giveaway, although this depends on how the economy performs next year’.
Mr Sunak’s proposal to limit borrowing will also keep a lid on the UK’s towering debt pile, which is currently hovering at around the same size as the economy at £2trillion.
In March, the OBR thought debt would peak at 109.7 per cent of the size of the economy in the 2023-24 financial year, and remain over 100 per cent until at least 2026. Now it is estimated to peak at 98.2 per cent this financial year before slowly falling.
The UK economy is set to grow by 6.5 per cent this year, 6 per cent next year, and 2.1 per cent in 2023. In March, the OBR pencilled in growth of 4 per cent this year, 7.3 per cent next and 1.7 per cent in 2023.
In 2024, the economy will grow by just 1.3 per cent, rising slightly to 1.6 per cent in 2025 and 1.7 per cent in 2026.
Tony Danker, of the Confederation of British Industry, said: ‘If the UK is to break out of a decade-plus cycle of anaemic growth and zero productivity, then the Government has to get serious about what it will actually take to deliver that.’
‘Stronger than expected’