Budget 2016: Chancellor George Osborne has broken two of his three golden fiscal rules. Here's what economists are saying...

 
Julian Harris
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The Chancellor Presents The Final Budget Before The 2015 General Election
The chancellor has pledged to run a surplus by the end of the current parliament (Source: Getty)

Keen to depict himself as a safe pair of hands, George Osborne introduced three golden fiscal rules after last year's general election. Unfortunately for the chancellor, he has already broken two of them, while the third is hanging by a thread.

Rule 1 concerned the welfare cap, which Osborne breached towards the end of last year following an abrupt U-turn over tax credit cuts.

Rule 2 stated that the national debt should fall as a proportion of GDP. But figures from the government's fiscal watchdog, the Office for Budget Responsibility (OBR), show debt rising to 83.7 per cent of GDP in the current fiscal year, up from 83.3 per cent last time around.

Rule 3 commits the chancellor to running a surplus by 2020. The new Budget figures are not promising, with the OBR expecting an extra £36.3bn in borrowing between the coming fiscal year and 2018-19. The achievement of a surplus depends on an incredibly sharp turnaround in 2019-20, with spending cuts and higher tax revenues expected to save the day.

So what do economists make of Osborne's pledge to get back into the black before the next election? We've picked out five of the best reactions...

"Dealing with the deficit has been left to another day. The big issues were ducked. Government debt appears to be back in fashion. Big increases in the deficit are planned. So while the headlines about sugar taxes or Lifetime ISAs will abound, the UK cannot have its cake and eat it" – Christopher Mahon, Baring Asset Management

"Unfortunately, in aggregate, the chancellor’s figures still don’t add up. The OBR, and in turn the chancellor, are too optimistic on economic growth and in turn government revenues. The chancellor also seems to be relying on a massive £31.8bn fiscal turnaround in an election year"– Douglas McWilliams, CEBR

"The chancellor says he has taken 'decisive action' in the face of the OBR’s gloom over the economy and the public finances. In reality he is postponing the hard decisions over where savings are to be made until the end of the Parliament in 2019 and 2020" – Nida Broughton, SMF

"We do not place much emphasis on the expected surplus by 2020, as we see this more as a statement of intent rather than a realistic forecast. But the higher deficits in each of the coming years lead to a higher than expected public debt ratio and further delays in reversing the rising debt trajectory, which is a key consideration in our sovereign credit analysis" – Kathrin Muehlbronner, Moody’s Investors Service

"Osborne seems so firmly focused on the politics of the budget that he seems to have ignored the economics of it altogether. At the current rate of cuts, he will now need to find £31bn of cuts or tax rises in the year 2019 alone to deliver his surplus. This is highly unlikely and it seems almost certain that he will end up breaking all three of his own fiscal rules" – Sam Bowman, Adam Smith Institute

"On the back of this budget, eliminating the deficit looks increasingly like a three parliament problem. Unless there’s a massive boost to the public finances towards the end of this Parliament, the chancellor will have to deliver just under half of the cuts to public spending in the last year of the current Government. Given the cocktail of threats from the global economy, achieving a surplus looks increasingly difficult without starting to raise taxes" – Michael Izza, ICAEW

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