Following the Spring Statement earlier today, we have updated our ICAEW chart of the week to reflect the changes in the official forecasts made by the Office for Budget Responsibility.
Rumours that the Chancellor would benefit from a ‘windfall’ in the form of higher than expected tax revenues turned out to be true, but only to a very modest extent. Overall, there was an average revenue uplift of £3.5bn per year over the forecast period, before taking into account some small tax increases of £0.8bn per year (most of which is for probate fees and the immigration health surcharge).
We were therefore quite right not to get carried away, as our updated ICAEW chart of the week is hardly changed from the previous version (see below).
The forecast for taxes and other income for 2019-20, the financial year about to start, has been increased by £1.6bn from the previous forecast presented with the Autumn Budget 2018. This comprises a revision to the revenue forecasts by the OBR of £1.0bn and a further £0.6bn from the consequence of government decisions (principally tax increases).
As a consequence, the new forecast for current receipts of £811.4bn for 2019-20 is still £5.9bn below the position that Philip Hammond inherited.
Of course, the big concern overshadowing the Spring Statement was Brexit, with the Chancellor caveating pretty much everything he said, in particular on his proposed plans for future spending.
This small upward revision (0.1%) in projected revenues was no doubt better for the Chancellor than a downward revision, but it won’t have done much to improve his mood after all.
See below for the original blog post:
The Spring Statement is this Wednesday, and there have been rumours that the Chancellor may benefit from a ‘windfall’ in the form of higher than expected tax revenues.
However, before getting carried away in giddy excitement by this prospect, we thought it might be worthwhile for our ICAEW chart of the week to look at what has happened to the Office for Budget Responsibility’s financial projections since Philip Hammond became Chancellor.
These projections cover multiple years, but for this purpose we have chosen to look at the forecast for taxes and other income for coming financial year. Back in 2016, the Chancellor inherited a forecast of £820.9bn for government revenue in 2019-20, although there have been some accounting and classification changes since then that means this is equivalent to a baseline forecast of £816.7bn (after also taking into account some modest net tax increases).
As the latest forecast from the Autumn Budget last year is for current receipts to be £809.8bn in 2019-20, there is still a £6.9bn shortfall compared with the position that Philip Hammond inherited.
Of course, the Chancellor and the OBR had very good reasons to be cautious in 2016. The UK had just voted to leave the European Union and it was unclear as to what this might mean for the economy (plus ça change), while productivity growth remained stubbornly weak. A small upward revision in March 2017 was followed by another downward revision in the November 2017 forecast, driven by even more pessimistic views on productivity.
These forecast downgrades in 2016 and 2017 have underpinned a generally gloomy Hammond Chancellorship, but he was marginally more cheerful in the last two fiscal events as upward revisions to the forecasts gave him some room to increase spending without adding further to borrowing.
Will the OBR be able to put a smile on the Chancellor’s face on Wednesday with a further upward revision to projected revenues? We look forward to finding out.