Last updated: 04:14 / Tuesday, 23 June 2015
Analysis by Investec

Good news for Osborne Ahead of Summer Budget

Good news for Osborne Ahead of Summer Budget

Improving public finance figures in U.K. today gave Chancellor George Osborne a fair wind ahead of his summer Budget on July 8, said Investec´experts. Public sector net borrowing (PSNB) in May, excluding the cost of bank bailouts, was £10.1 billion, a fall of £2.2 billion compared with May last year.

Lower government investment spending, higher VAT receipts and fines levied on banks all helped to generate the improved fiscal outlook.

Alongside May’s figures, the data showed the PSNB figure, again excluding the cost of bank bailouts, for the financial year from April 2014 to March 2015 had been £89.2 billion, down by £9.3 billion on the previous year.

Room to manoeuvre

July 8 will see Mr Osborne deliver his first “Conservative”, as opposed to Coalition, Budget and these figures widen his room for manoeuvre. The justification for having a second Budget after that of March 19 is to start to implement the policies on which it won the May 7 General Election, point out Investec.

Announcing the summer Budget, the Chancellor said: “I don’t want to wait to deliver on the commitments we have made to working people.

“It [the summer Budget] will continue with the balanced plan we have to deal with our debts, invest in our health service and reform welfare to make work pay.”

Welfare savings

The Conservative Government is pledged to axe £12 billion a year in welfare spending but it is not yet clear how most of this will be achieved, explained the firm in its last analysis.

Announcing this second Budget, Mr Osborne said: “We will always protect the most vulnerable, but we also need a welfare system that’s fair to the people who pay for it.”

The best-known welfare pledge is that of reducing the “benefit cap” per household from £26,000 a year to £23,000. But the independent think tank, the Institute for Fiscal Studies (IFS), has noted: “Because in total fewer than 100,000 families would be affected… the policy reduces spending by only £0.1bn.”

Similarly, the pledge to remove housing benefit from 18-21-year-olds would save, again, just £0.1 billion, said the IFS. Overall, it said, the public is still in the dark as to £10.5 billion of annual welfare cuts.

Campaign commitments

On the other side of the equation – spending - critics suggest the Chancellor needs this second Budget to raise the money to pay for uncosted commitments made on the campaign trail when the polls were running neck and neck.

These included a commuter rail fare freeze, a huge increase in free child-care for working parents, an increase in the tax threshold and subsidies for home purchase.

Focus on productivity

Mr Osborne said: “There will be a laser-like focus on making our economy more productive so we raise living standards across our country.”

Britain’s productivity performance has been dire in recent years and output per hour, on the latest figures, is actually slightly lower than it was in 2007. But some fear that poor productivity is the price to be paid for record levels of employment.

The Chancellor himself, speaking to the business lobby group the CBI on May 20, said: “I would much rather have the productivity challenge than the challenge of mass unemployment.”