The Daily Telegraph, 22 November, Roger Bootle
Just a few weeks ago, the Chancellor seemed cautiously pessimistic about the prospects for tax cuts. Now, here he is dishing out the dosh in all directions. For a moment during his speech, an uber-confident Jeremy Hunt reminded me of Gordon Brown in his pomp. What has made the difference?
Supposedly, it is the fall of inflation to “only” 4.6 per cent. Yet this fall was on the cards anyway. Meanwhile, the underlying rate of inflation remains very high and the Bank of England has a lot of work to do to bring inflation back to the 2 per cent inflation target, as the Governor recently pointed out, perhaps in a veiled warning to the Chancellor not to be too generous.
More plausibly, it is the improvement in the economy. The Office for Budget Responsibility (OBR) admitted that the real economy is 3 per cent larger than it forecast in March, mostly down to statistical revisions. In fact, in true OBR tradition, this apparent boon is largely offset by reductions in its growth forecast for coming years.
Indeed, in the medium term, the OBR’s new forecast is that real GDP will only be about 0.5 per cent higher than it thought in March. Accordingly, better economic performance does not do much to reduce borrowing in future years or enable the Chancellor to meet his primary fiscal rule, namely that public debt as a share of GDP should be falling in the final year of the forecast period.
Click here to read the piece in full.