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Seven charts you need to see before the 'Emergency Budget'
As George Osborne prepares to deliver the Summer Budget, we take a look at the Chancellor's record on balancing the books
George Osborne, the Chancellor, will present an emergency Budget in July Photo: REUTERS
Sustainable investing beyond 'green funds' With a focus on responsible investing, financial services specialist Alliance Trust has a new strategy
Sponsored by Alliance Trust
By Peter Spence, Economics Correspondent
5:21PM BST 25 Jun 2015
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27 Comments
George Osborne is set to deliver the first Budget of his career as the Chancellor of a Conservative Government.
It's being called an 'Emergency Budget', as it's being introduced very soon after the general election.
Until now, his objectives have always been tempered by the presence of the Liberal Democrats within the coalition government.
Mr Osborne has already unveiled plans to enshrine permanent budget surpluses in law, and analysts expect him to unveil tighter borrowing forecasts when he reveals new spending plans on July 8.
But how well has he managed to sticks to previous borrowing plans? And can the Chancellor credibly achieve new ones?
1. Plan A a thing of the past
If eveything had gone to plan, the July Budget would be a triumphant moment for Mr Osborne, with the Government about to close the budget deficit.
No such luck.
Source: HSBC, OBR
While the coalition Government was successful in halving the fiscal deficit from 10pc of GDP in the 2008/09 fiscal year to 4.8pc in 2014/2015, that's still wildly off target.
Mr Osborne's initial plans, as unveiled in June 2010, would have the deficit around 2pc as the last fiscal year ended, and falling below that by now.
Liz Martins, an economist at HSBC, said: "Away from the financial crisis and post-crisis period, the deficit has only been wider as a percentage of GDP in seven of the last 60 years. Put simply, it is still huge."
2. Government debt was never supposed to get this high
Consequently, Government debts continued rising as a percentage of GDP throughout much of the last Parliament.
According to Mr Osborne's initial plans, the state's debts would never have risen above three-quarters of the economy's size.
Source: HSBC, OBR
The latest borrowing data show that Government debt rose above £1.5 trillion for the first time on record in May.
A failure to close the deficit means that the debt pile is still rising, albeit at a slower pace.
3. Where did it all go wrong?
While the coalition managed to cut back state spending, the expected increase in tax revenues never materialised.
Rather, they have been sliding. "In part, this reflects the weaker-than-expected economic performance," said Ms Martins.
Source: HSBC, OBR
A slow recovery has meant poor earnings growth, and with it, a disappointing low tax take.
On top of that, the last Government chose to cut taxes, aside from a VAT hike to 20pc in 2010.
Cuts to corporation tax and employer national insurance contributions, a council tax freeze, and an increased personal allowance all put a dent in potential revenue growth.
4. Back to the drawing board
Now Mr Osborne can have another go.
In his last Budget of the current Government, the Chancellor set out a plan to achieve a budget in surplus by the end of the 2018/19 fiscal year.
Source: Credit Suisse, OBR, ONS
Mr Osborne is expected to unveil even tighter austerity targets this July.
The Conservative Party's election manifesto called for £13bn of cuts to departmental expenditure, £12bn from welfare, and to raise £5bn through unspecified new tax evasion measures.
Factoring in other pledges - to maintain ring fences around health, education, and foreign aid - the cuts over the next four years look to be harsher than those in the last Parliament.
The Institute for Fiscal Studies calculates that the cuts to non-protected spending will total just under 18pc by the end of the 2018/19 fiscal year.
5. Second time lucky?
Judged on the Office for Budget Responsibility's (OBR) forecasts at the March Budget, the year is off to a good start.
Source: Credit Suisse, OBR, ONS
Sonali Punhani, an economist at Credit Suisse, said: "Around one-third of the decline in government borrowing anticipated in 2015-16 has occurred in the first two months.
"If we assume the pace of tightening seen in the first two months to continue, public sector net borrowing excluding public sector banks may drop to £65.1bn in 2015-16, around £10bn lower than the £75.3bn target penciled in the OBR March forecasts."
6. Heading for a historic cut in the size of the state
If the Conservatives stick to their plans, the deficit reduction achieved by David Cameron will be greater than by any other Government in recent history.
Source: HSBC, ONS
It's also the Government that started off with the highest level of borrowing in recent history too.
7. But economists aren't convinced Mr Osborne has what it takes
This time around, the Government has tied its own hands to an extent when it comes to cutting the deficit.
The Conservatives have pledged not to increase VAT, national insurance or income taxes for five years, leaving little room to raise more revenues. And a lot of the low hanging fruit in terms of spending cuts has already been picked.
So now the Government will have to hope that productivity growth picks up - something that has continually disappointed in the years since the financial crisis - or face missing more borrowing targets. HSBC does not believe that the state's books will be balanced even by the 2019/20 fiscal year.
Source: HSBC, OBR
Ms Martins said: "We're not saying the Government won't close the deficit, but we are saying that it's set itself a formidable challenge, and there's a good chance that the deficit will still be with us at the end of this Parliamentary term."
As George Osborne prepares to deliver the Summer Budget, we take a look at the Chancellor's record on balancing the books
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George Osborne, the Chancellor, will present an emergency Budget in July Photo: REUTERS Sustainable investing beyond 'green funds' With a focus on responsible investing, financial services specialist Alliance Trust has a new strategySponsored by Alliance Trust
By Peter Spence, Economics Correspondent
5:21PM BST 25 Jun 2015
Follow
27 Comments George Osborne is set to deliver the first Budget of his career as the Chancellor of a Conservative Government.
It's being called an 'Emergency Budget', as it's being introduced very soon after the general election.
Until now, his objectives have always been tempered by the presence of the Liberal Democrats within the coalition government.
Mr Osborne has already unveiled plans to enshrine permanent budget surpluses in law, and analysts expect him to unveil tighter borrowing forecasts when he reveals new spending plans on July 8.
But how well has he managed to sticks to previous borrowing plans? And can the Chancellor credibly achieve new ones?
1. Plan A a thing of the past
If eveything had gone to plan, the July Budget would be a triumphant moment for Mr Osborne, with the Government about to close the budget deficit.
No such luck.
Source: HSBC, OBR
While the coalition Government was successful in halving the fiscal deficit from 10pc of GDP in the 2008/09 fiscal year to 4.8pc in 2014/2015, that's still wildly off target.
Mr Osborne's initial plans, as unveiled in June 2010, would have the deficit around 2pc as the last fiscal year ended, and falling below that by now.
Liz Martins, an economist at HSBC, said: "Away from the financial crisis and post-crisis period, the deficit has only been wider as a percentage of GDP in seven of the last 60 years. Put simply, it is still huge."
2. Government debt was never supposed to get this high
Consequently, Government debts continued rising as a percentage of GDP throughout much of the last Parliament.
According to Mr Osborne's initial plans, the state's debts would never have risen above three-quarters of the economy's size.
Source: HSBC, OBR
The latest borrowing data show that Government debt rose above £1.5 trillion for the first time on record in May.
A failure to close the deficit means that the debt pile is still rising, albeit at a slower pace.
3. Where did it all go wrong?
While the coalition managed to cut back state spending, the expected increase in tax revenues never materialised.
Rather, they have been sliding. "In part, this reflects the weaker-than-expected economic performance," said Ms Martins.
Source: HSBC, OBR
A slow recovery has meant poor earnings growth, and with it, a disappointing low tax take.
On top of that, the last Government chose to cut taxes, aside from a VAT hike to 20pc in 2010.
Cuts to corporation tax and employer national insurance contributions, a council tax freeze, and an increased personal allowance all put a dent in potential revenue growth.
4. Back to the drawing board
Now Mr Osborne can have another go.
In his last Budget of the current Government, the Chancellor set out a plan to achieve a budget in surplus by the end of the 2018/19 fiscal year.
Source: Credit Suisse, OBR, ONS
Mr Osborne is expected to unveil even tighter austerity targets this July.
The Conservative Party's election manifesto called for £13bn of cuts to departmental expenditure, £12bn from welfare, and to raise £5bn through unspecified new tax evasion measures.
Factoring in other pledges - to maintain ring fences around health, education, and foreign aid - the cuts over the next four years look to be harsher than those in the last Parliament.
The Institute for Fiscal Studies calculates that the cuts to non-protected spending will total just under 18pc by the end of the 2018/19 fiscal year.
5. Second time lucky?
Judged on the Office for Budget Responsibility's (OBR) forecasts at the March Budget, the year is off to a good start.
Source: Credit Suisse, OBR, ONS
Sonali Punhani, an economist at Credit Suisse, said: "Around one-third of the decline in government borrowing anticipated in 2015-16 has occurred in the first two months.
"If we assume the pace of tightening seen in the first two months to continue, public sector net borrowing excluding public sector banks may drop to £65.1bn in 2015-16, around £10bn lower than the £75.3bn target penciled in the OBR March forecasts."
6. Heading for a historic cut in the size of the state
If the Conservatives stick to their plans, the deficit reduction achieved by David Cameron will be greater than by any other Government in recent history.
Source: HSBC, ONS
It's also the Government that started off with the highest level of borrowing in recent history too.
7. But economists aren't convinced Mr Osborne has what it takes
This time around, the Government has tied its own hands to an extent when it comes to cutting the deficit.
The Conservatives have pledged not to increase VAT, national insurance or income taxes for five years, leaving little room to raise more revenues. And a lot of the low hanging fruit in terms of spending cuts has already been picked.
So now the Government will have to hope that productivity growth picks up - something that has continually disappointed in the years since the financial crisis - or face missing more borrowing targets. HSBC does not believe that the state's books will be balanced even by the 2019/20 fiscal year.
Source: HSBC, OBR
Ms Martins said: "We're not saying the Government won't close the deficit, but we are saying that it's set itself a formidable challenge, and there's a good chance that the deficit will still be with us at the end of this Parliamentary term."