Two key points of Lib-Tory deal: £6bn and borrowing review
Two big measures stand out from the Liberal Democrat/Conservative "agreements reached" document. First, the £6bn in-year cuts will happen but there is a caveat:
"subject to advice from the Treasury and the Bank of England on their feasibility and advisability."
Mervyn King gave his approval this morning as to their advisability, but as to their feasibility we will have to wait. There is still nothing concrete beyond what Peter Gershon produced before the election.
Now for the big one:
"New forecasts of growth and borrowing should be made by an independent Office for Budget Responsibility for this emergency budget."
a) The new government does not trust the Treasury projections of growth
b) It will probably revise the borrowing forecast - most likely upward.
It will be a big ask for whoever is to lead this OBR body. The options are to revise the Treasury's methods or to go straight out to the private sector forecasters who have constantly been more sceptical than HMT.
And the document begs a question. When George Osborne referred to Budget 2010 as a "work of fiction" he may not only have meant the growth projections. The long term deficit reduction plan relied on raising:
- 17bn from reversing fiscal stimulus
- 19bn in tax rises
- 38bn from cuts
- 17bn from the proceeds of growth as housing and the finance sector revive
If we break this down it is the last one that is subject to variability: the Con-Lib government's crackdown on bonuses and bank structure looks harder than Labour's. And its fiscal tightness may bear down on growth harder than Labour's plans did. So that 17bn may, as its critics suggested, be a triumph of hope over optimism.
So there could be quite a big shock in Budget 2010 two-zero, which will happen within 50 days.