The OBR as expected has revised its forecasts down considerably. 13 % growth has been reduced to 8.4% over the period 2010-2015, compared to my forecast of 7.5%. I fear they are still on the optimistic side for the last two years of the strategy, but the differences are not now so large.
The OBR says that total borrowing 2010-2015 will now be £563 billion, compared to their forecast of £451 billion in June 2010 and £485 billion in March 2011. They are now a little higher than my forecast of up to £550 billion, with a central figure of £520 billion. I apologise for not being pessimistic enough. It reminds us that they see a strong relationship between growth in output and growth in tax revenues.
Spending remains on the same overall total. The extra deficit arises from a sharp downwards revision to their forecast of increased tax revenues. Readers will remember I always queried the likelihood of an extra £172 billion of tax revenue for Year 5 compared with the last Labour year.
There is a small shift from current to capital spending within the same increases in total spending. Over the five years capital spending will increase by a total of £5.8 billion. Current spending will be £1.1 billion less than the old plans in 2014-15. Total spending rises from £669.7bn in 2009-10 to £736.4 billion by 2014-15, an increase of 10% in cash terms.