A summary of Spring Statement 2018 and the Office for Budget Responsibility's forecasts for the economy and public finances.Jump to full report >>
The Chancellor of the Exchequer delivered Spring Statement 2018 to Parliament on 13 March. At the same time the Office for Budget Responsibility (OBR) published updated forecasts in its economic and fiscal outlook.
As expected, the Chancellor made no new spending or tax announcements.
Following consultation, the government:
At Autumn Budget 2017, the Government announced additional spending for departments to prepare for exiting the European Union. Alongside Spring Statement 2018, the Chief Secretary to the Treasury allocated the additional funding for 2018/19 to departments. The Home Office (£395 million), the Department for Environment, Food and Rural Affairs (£310 million) and HMRC (£260 million) received the largest allocations.
The additional funding results in Barnett consequentials for Scotland (£37.3 million), Wales (£21.4 million) and Northern Ireland (£15.2 million).
The Chancellor confirmed that he will set out public spending for 2020 and beyond, at this year’s autumn Budget. A Spending Review will take place in 2019, which will allocate this spending to government departments.
The Office for Budget Responsibility (OBR) published a new set of forecasts alongside the Chancellor’s Spring Statement.Their previous set of forecasts were from November 2017.
The OBR made only very small alterations to its GDP growth forecasts compared with its November 2017 projections. Slightly faster growth is expected in 2018, 1.5% compared with 1.4%, as a result of a stronger world economy. Forecasts for 2019 and 2020 are left unchanged at 1.3%, while for 2021 and 2022 they are very slightly lowered by 0.1%-points to 1.4% and 1.5%, respectively.
The main feature of these new forecasts is that they are broadly in line with the OBR’s November forecasts, which downgraded the UK’s economic prospects: the trend growth rate was lowered to 1.5% from around 2% previously.
This was mainly a consequence of the OBR reducing its assumptions about long-term productivity growth, reflecting poor performance since the 2008/09 financial crisis.
The OBR forecasts consumer price inflation (as measured by CPI) to ease from its current rate of 3.0% to 1.9% on average in the first quarter of 2019 – below the Bank of England’s 2% target. In its latest February forecasts, the Bank forecast CPI inflation would be higher at 2.3% during the same time period. The OBR’s new CPI forecasts are largely unchanged from November’s.
Average wages are forecast to grow by more in 2018 than was forecast in November. The OBR projects an increase of 2.7% compared with 2.3% previously, a result it says of “early indications of stronger growth in pay settlements” this year. However, growth rates have been lowered a little in the later years of the forecast – for example, from 3.0% to 2.8% in 2021 and from 3.1% to 3.0% in 2022.
Average earnings growth adjusted for inflation – real earnings – are forecast to “remain subdued, averaging just 0.7% a year” over the next five years.
The OBR also published new public finance forecasts.
Better than expected tax revenues have led to the OBR lowering its forecasts for public sector borrowing in 2017/18. The majority of the improvement comes from strong self-assessment income tax, PAYE, and National Insurance contributions.
The OBR puts the recent unexpected strength in tax receipts down to temporary factors, which are unlikely to persist in future years of the forecast.
The OBR forecast that borrowing will be £3.2 billion lower a year on average from 2018/19 onwards. Again, this largely comes as a result of an improved receipts forecast.
The OBR forecasts the debt-to-GDP ratio to be around 1% of GDP lower in all years of the forecast, compared with its November 2017 forecast. Some of this revision is a result of the OBR expecting GDP to be higher in all years, while some is due to the forecast cash level of debt being lower.
The path of the debt-to-GDP ratio is forecast to be the same as in November 2017 – that is, falling in each year of the forecast period after 2017/18.
The OBR believes the Government is on course to meet its targets covering public sector borrowing, debt and welfare spending. The Government’s headroom – the difference between the OBR’s forecast and the Government’s target – is little changed for the borrowing target.
The OBR believes that the Government’s overall objective for the public finances of a balanced budget – interpreted as applying to 2025/26 – looks challenging.
Commons Briefing papers CBP-8255
Authors: Matthew Keep; Daniel Harari