A shortfall between government spending and income that reached £155bn in the aftermath of the banking crash was forecast in March this year to fall to £55.5bn in 2016-17. The Office for Budget Responsibility said its forecast was optimistic and it will now be £68bn.
The allocation of more cash for road maintenance, digital infrastructure, and research and development has reversed cuts in government investment spending that formed a large part of the previous chancellor George Osborne’s last austerity budget.
After a deep cut in 2014 followed by a boost last year, departments have been spared further austerity. But with the NHS under extreme pressure and budget reductions for unprotected departments still in place, the squeeze on the state will continue well into the next parliament.
A cap on welfare spending was lifted slightly after an easing of universal credit cuts. The overall bill is expected to continue rising. However, pensions costs, which are outside the cap, are to be kept in check from 2018.
Britain’s national income this year is expected to be slightly higher than the forecast in March predicted, but downgrades for the next two years are expected to deny the government vital tax receipts.
This a key measure of household spending power and watched closely by the Treasury now the economy is driven largely by consumer outlay. Steadily rising inflation is expected to offset wages growth and limit future growth.
Exports have fallen as a proportion of GDP for decades. Forecasts show the ratio is expected to continue to fall, limiting the country’s ability to buy goods from abroad without running up a balance of trade deficit.
For the last six years the government has expected a rise in productivity – the value of products made or sold by a worker in an hour of work – to bolster profits and workers’ earnings. It hasn’t happened. This year the recovery in productivity has been downgraded again.