Has George Osborne abandoned austerity?
Chancellor says government must be 'realistic' about prospects for end of decade surplus
Another big political casualty has emerged from the fallout of the Brexit victory at last week's EU referendum.
This time, however, it's not another politician's ambitions but the totemic fiscal pledge that was to define David Cameron's second term.
Citing "clear signs…of negative economic shock" since last Friday and warning of an "impact on jobs and growth", Chancellor George Osborne has abandoned his golden rule that the public finances must be returned to surplus by the end of this parliament.
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"We must provide fiscal credibility, continuing to be tough on the deficit while being realistic about achieving a surplus by the end of the decade," he said, reports the BBC.
Labour's shadow chancellor John McDonnell, who is keen to claim a victory to boost the party's embattled leader, Jeremy Corbyn, hailed the end of austerity, saying it came "after nine months of pressure from the Labour leadership".
But does Osborne's announcement amount to a U-turn on his key policy?
It is being widely reported as such. His so-called "fiscal charter", passed in parliament last year, committed the government to reducing spending in absolute terms to below the level of taxation income by 2020.
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The likes of the Institute for Fiscal Studies have long said this had a 50:50 chance at best of succeeding. Just last week, it was revealed the government has actually borrowed more in the first two months of the latest financial year than the last.
Treasury insiders claim, however, that a provision in the charter allowing for it to be broken in "non-normal times" – defined as annual economic growth being forecast to dip below one per cent – would clearly apply to the post-Brexit landscape.
But others may counter that the break clause only applies after the initial return to surplus had been achieved.
Whatever the interpretation, there is another significance to the announcement - it comes on the day after leadership and prime ministerial hopeful Theresa May explicitly stated the target would have to be dropped, the BBC's Kamal Ahmed says.
Even her rival, Michael Gove, outlining his own leadership bid today, similarly made big pledges – committing to £100m a week of spending on the NHS and an expensive cut in VAT on fuel.
On Wednesday, Cameron told parliament the fiscal rule would not be abandoned. What today's developments prove, if nothing else, is that he is no longer calling the economic tune.
Osborne's fiscal hopes hang on Remain referendum win
25 May
George Osborne's hopes of hitting his borrowing targets for this year – and returning day-to-day public finances to surplus this decade – could hang on a vote to stay in the European Union in next month's referendum.
Official figures published yesterday dealt a double blow to the Chancellor, revealing that government borrowing for the last financial year was £4bn higher than estimated just two months ago and that Osborne is already behind schedule on closing the fiscal gap in this financial year in the first month alone.
The Office for National Statistics now puts the amount borrowed to cover the budget deficit – the difference between tax receipts and spending – at £76bn for 2015-16, £2bn more than initially estimated and close to £4bn more than the Office for Budget Responsibility forecast at the Budget in March.
For April, the first month of the new financial year, the ONS estimates expenditure exceeded income by £7.2bn. The BBC notes this is far higher than consensus analyst expectations of £6.6bn, while the Financial Times adds the £300m improvement on the same month last year is far short of the £1.6bn needed to meet Osborne's target of reducing the deficit this year by £20bn.
Importantly, the key shortfall in April's numbers appears to be in corporation tax receipts, which fell by 5.1 per cent. This reflects a downturn in economic fortunes that most blame on fears of a vote for Brexit next month and the uncertainty that would result – and it more than offset record stamp duty takings and a modest increase in income tax paid by workers.
John Hawksworth, the chief economist at PwC, told the FT it was "possible" the chancellor could still meet his targets for a £55bn deficit this year, but that depends on economic growth rebounding strongly after an expected Remain vote at the EU referendum.
Osborne has pledged to reduce borrowing each year and to run a surplus of £10bn by 2019-2020.
The Treasury stressed the significant improvements in the public finances in recent years, pointing to the £15.7bn fall in the deficit last year compared to 2014-15. But, referring to the EU referendum, it added that "the fiscal repair job is not finished and it would be dangerous to put this at risk".
Osborne's latest borrowing forecast looks doomed after just one week
22 March
George Osborne is not having a good week.
Hot on the heels of a series of climbdowns on measures announced in his Budget last week, including most notably scrapping £4.4bn of planned cuts to disability benefits, new government borrowing figures have raised the prospect that he will miss a forecast that he has only just revised lower.
The Financial Times reports that data from the Office for National Statistics estimate new borrowing was £7.1bn in February, about £500m less than the same month in 2014 and significantly more than the £5.9bn expected by analysts. Borrowing for the first 11 months of the financial year stands provisionally at £70.7bn, down £14bn on last year.
At the Budget last week, Osborne presented new Office for Budget Responsibility (OBR) forecasts that full-year borrowing for the 12 months to March would come in at £72.2bn. With just £1.5bn to play with and borrowing for last March coming in at £7.3bn, it is likely that just six days after the target was reset, it is likely to be missed. The previous projection of £73.5bn is also unlikely to be met.
Vicky Redwood of Capital Economics told the Daily Telegraph that Osborne might point to the small print in the OBR calculation, which states that its new forecasts "might only become apparent in later revisions".
The Guardian says the borrowing numbers are higher than expected even despite improved income tax and national insurance contributions, up four per cent at a time of record employment. This is due in part to a £1.7bn year-on-year fall in capital gains tax receipts and an extra £2.5bn of borrowing by councils whose central government grants have been cut.
Osborne faced a grilling from Labour MPs in the Commons this afternoon over the disability cuts debacle that led to the resignation of work and pensions secretary Iain Duncan Smith on Friday.
According to The Guardian, Osborne was far from contrite and in fact offered a robust defence of the broad thrust of the Budget. He admitted the benefit cuts were a "mistake", but said that "social justice is impossible without sound public finances" and pointed to independent figures showing the richest households are paying a greater share of tax as evidence his policies are fair.
But his opposite number, John McDonnell, repeated calls for him to resign, saying the willingness to cut money from the most vulnerable in society undermined government claims that "we are all in this together" and calling the manoeuvring since Duncan Smith's departure the "grubby, incompetent manipulations of a political chancellor".