{"id":29630,"date":"2015-07-09T07:36:50","date_gmt":"2015-07-09T06:36:50","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=29630"},"modified":"2015-07-09T07:36:50","modified_gmt":"2015-07-09T06:36:50","slug":"george-osbornes-planned-budget-surplus-requires-some-heroic-and-wholly-implausible-assumptions","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2015\/07\/09\/george-osbornes-planned-budget-surplus-requires-some-heroic-and-wholly-implausible-assumptions\/","title":{"rendered":"George Osborne’s planned budget surplus requires some heroic and wholly implausible assumptions"},"content":{"rendered":"

As I have long explained, if the government is to run a surplus within the economy somebody else has to borrow. That's basic double entry book-keeping at play at a national level. It's a fact that cannot be ignored or denied. What that also means is that if the government is to clear a big deficit somebody else has to borrow a lot more. This fact is reflected in the following chart from yesterday's\u00a0Office for Budget Responsibility forecasts<\/a>:<\/p>\n

\"Screen<\/a><\/p>\n

The bottom, red line, is government borrowing. The grey area is the forecast. And the requirements for a government deficit are:<\/p>\n

1) Households stick with much higher lending then they did from 2009 to 2013<\/p>\n

2) The overseas sector borrows much more in the UK (which effectively requires a significant improvement in the balance of trade)<\/p>\n

3) Business borrows heavily, which goes against a trend that has been persistent from at least 2001.<\/p>\n

Unless those happen as a matter of fact George Osborne will not clear his deficit.<\/p>\n

It's important to note that he has missed all his previous forecasts on deficit reduction and I have to say I think he will do so again. To illustrate the point, the apparently innocuous flat line on personal borrowing requires substantial increases in household debt, as this OBR forecast shows:<\/p>\n

\"Screen<\/a><\/p>\n

First, that implies a massive change of behaviour for which there is no evidence right now. Second, the resulting ratios imply dangerous levels of borrowing in the household economy that exceed pre-crash levels. The implications are obvious.<\/p>\n

The assumed change in business behaviour is equally dramatic:<\/p>\n

\"Screen<\/a>To get to required borrowing levels business investment will have to reach real levels substantially higher than anything seen in the Uk for the last 35 years.<\/p>\n

Someone is living in cloud cuckoo land if they think that this is going to happen.<\/p>\n

And it's only in cloud cuckoo land that Osborne's budget will balance as a result because these assumptions are not just heroic, they are utterly implausible.<\/p>\n","protected":false},"excerpt":{"rendered":"

As I have long explained, if the government is to run a surplus within the economy somebody else has to borrow. That’s basic double entry
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