The Coalition government published a 60 month strategy in June 2010. The Chancellor increased spending and borrowing for the forecast 5 year period by £34 billion in the March 2011 budget. How is it going now?
Readers of this site will remember that the strategy is to increase total current spending by £93 billion a year in 2014-15 compared to 2009-10, and to increase tax revenues by £172 billion a year over the same period. This will bring the deficit under control by 2015. It entails borrowing an extra £485 billion over the five years.
I have been looking at what could go wrong with the strategy.
It is possible that spending will go up by more than planned. The last two years of the plan show relatively small increases, of 1.9% and 1.8% in spending, compared with the 5.3% last year. As these will be the years running up to the election, it is possible the governemnt will then want to spend more.
If they allowed themselves 1% more in the last year that would be an extra £7 billion. If they allowed themselves an extra 1% in each of the last two years, that would be £20 billion extra.
The tax forecasts assume rapid growth for the UK in the last three years of the strategy. If growth was 1% less in 2013, revenues would come in around £20 billion less over the full period. If growth was also 1% down in the penultimate year, revenues would then be around £30 billion down.
Of course, things could work out better. Extra growth, on top of the 2.9% forecast for each of the end years, could add to revenues. If the government takes more cost out than planned in the second and third years, there will b e knock on benefits from that. Crucial to success is getting a more efficient and effective public sector as soon as possible.
The danger is that if there are too many overruns swelling the deficit, the government will then face dearer borrowing costs for every pound borrowed on top of the hazard of the extra borrowing.