Chancellor George Osborne will borrow an extra £33bn over the next five years as he ruled out making cuts to make up for a tax receipts shortfall.
Weaker economic growth left Osborne with a £49bn tax receipts hole over the rest of the current parliament and £69bn gap over the next five years. Lower incomes alone will lead to a loss of £34.5bn in income tax and national insurance contributions over the remainder of the current parliament. The total effect of policies announced today was to reduce receipts further.
Receipts are expected to be weak on the back of weaker economic growth. The government's fiscal watchdog, the Office for Budget Responsibility, said wages and spending would be lower due to more sluggish productivity growth.
"Weaker productivity growth implies weaker nominal GDP growth and this reduces growth in all the main tax bases (wages and salaries, consumer spending and corporate profits)," the OBR in its economic and fiscal outlook.
Total nominal GDP growth, GDP not adjusted for inflation, over the next five years has been revised down to 21.7per cent from 23.8 per cent.
Instead of raising taxes or cutting spending, he decided to borrow more and got a fortunate lift from lower interest rates.
The Chancellor saves £32.8bn on so-called annual managed expenditure. Of that, £14bn is due to lower interest on government debt and £10.5bn is due to the fact the government has £375bn of debt parked at the Bank of England, which it technically owns.
The OBR lowered its forecast for borrowing for this year to £72.2bn, despite economists widely expecting it to be ramped up by a billion or two. It said lower receipts were offset by smaller net contributions to the EU and lower tax credits spending.