George Osborne says more optimistic growth and borrowing forecasts, boosted by the falling price of oil, mean the squeeze on public spending can end a year earlier than predicted.
The chancellor said falling oil prices and high employment mean Britain’s growth and debt forecasts are more optimistic than at the Autumn Statement, with government borrowing set to come in £5bn lower over three years.
But Mr Osborne said he would spend the windfall on paying down Britain’s debts faster, not on pre-election tax giveaways.
A barrel of Brent crude is now trading at less than half its price last June, boosting the economy by encouraging more consumer spending and lowering inflation, which brings down the cost of government borrowing.
We took difficult decisions in the teeth of opposition and it worked – Britain is walking tall again
The double whammy means the Office for Budget Responsibility (OBR) has revised its borrowing and growth forecasts, with GDP growth set to come in at 2.5 per cent instead of 2.4 per cent this year.
But rather than using the money to fund spectacular pre-election tax giveaways, Mr Osborne says he remains committed to paying down the national debt.
Debt is now predicted to fall from 80.4 per cent in 2014/15 to 80.2 per cent next year, before reaching 71.6 per cent in 2019/20.
The big news is: George Osborne blinked when it came to the scale of austerity planned over the next five years – but only slightly. He was faced with a windfall from selling bank shares, mortgage portfolios, lower oil prices and lower welfare costs. He could have used them to reduce austerity. Instead he has announced more austerity for the first three years of the next parliament – but a relaxation in the final two years of the decade.
Giving 100% of extra business rates collected to Greater Manchester is building on the buzz Osborne created by devolving the NHS budget there. Osborne is delivering what no Labour government ever did to the big northern cities – the beginnings of relative fiscal autonomy. This is highly political: though the north will go on voting Labour, largely, in 2015, if Labour crumbles after a defeat on 7 May, the Coalition Parties believe they can use this to claw their way back into the north of England.
Labour's reaction revolves around the assertion that the “feelgood” rhetoric bears no relationship to people’s lives. Labour is on strong ground when it comes to the claim that living standards are rising: on the official ONS measure they are not. But elections are won on the middle ground. Osborne’s numerous micro-measures – aimed at people with annuities, people with savings, the self-employed and higher earners just below the 40% tax bracket are just as real in the lives of middle class people as the bedroom tax and the minimum wage are for those on low incomes.
Public sector net borrowing is forecast to fall from 5 per cent of GDP this year – less than half the level the coalition inherited – to a small surplus of 0.2 per cent in 2018/19, the chancellor said.
Borrowing is set to come in at £5bn less over three years than anticipated in last year’s autumn statement, according to the OBR.
And the latest figures show the chancellor is on course to meet his 2010 pledge to have debt as a share of national income falling by 2015.
Mr Osborne said the “squeeze on public spending” will now end in 2019/20, when government spending will be at a similar level to where it was in 2000.
The squeeze on public spending ends a year earlier too. George Osborne
He the House of Commons: “We took difficult decisions in the teeth of opposition and it worked – Britain is walking tall again.
“The hard work and sacrifice of the British people has paid off. The original debt target I set out in my first Budget has been met.
“We will end this parliament with Britain’s national debt share falling. The sun is starting to shine – and we are fixing the roof.
“Because the national debt share is falling a year earlier than forecast at the Autumn Statement – the squeeze on public spending ends a year earlier too.
“In the final year of this decade, 2019-20, public spending will grow in line with the growth of the economy. We can do that while still running a healthy surplus to bear down on our debt.”
Mr Osborne acknowledged that falling world oil prices have been the main driver behind today’s better-than-expected projections.
But continuing high employment means the benefit bill will be lower and tax receipts higher.
The government will also be able to bank billions thanks to plans to sell mortgage debt the state bought from buildings societies Northern Rock and Bradford and Bingley during the crash.
Mr Osborne said the latest projections on living standards show they will be higher in 2015 than in 2010.
Falling living standards caused by wages growing slower than inflation has been a weakness Labour has been keen to exploit in recent years.
But Mr Osborne said real household disposable income is set to come in higher in 2015 than in 2010, meaning the average household will be £900 better off than at the last election.
The chancellor said business investment is rising four times faster than household consumption, manufacturing is growing faster than it did before the crash, and the north of England is growing faster than the south.
He said the government’s commitment to creating a “northern powerhouse” economy in the north showed that this was “a truly national recovery”.
Labour leader Ed Miliband said: “Never has the gap between the Chancellor’s rhetoric and the reality of people’s lives been greater than it was today.
“This is a budget people won’t believe from a Government that is not on their side – because of their record, because of their instinct, because of their plans for the future.”
He added: “The chancellor has failed the working families of Britain. For the first time since the 1920s, people are earning less at the end of a government than at the beginning. People are £1,600 a year worse off.
“They have built fewer houses than at any time for almost 100 years.”
He added: “There are more zero hours contracts than the population of Glasgow, Leeds and Cardiff combined. These are the facts. These are the inconvenient truths of his record.”