Shrinking economy

I was wrong an hour ago, to say the Golden Rule measure of borrowing was looking better than it had been in 2012. Sorry, bit rushed.

Looking at the data, the chancellor is conceding that by 2011, the economy will be 0.5% smaller than he had thought. And he doesn't appear to be thinking that "lost growth" will magically re-appear later.

That is a real concession. It’s says the slowdown is not all a blip.

This all means the Treasury have "lost" revenue and has extra costs, amounting to a five to eight billion a year deterioration in the public finances for each of the next few years. Of that, about 1.9 billion is being raised in new tax rises

But fortunately for the chancellor, the finances would be even worse than they are, but for the fact that inflation is higher than it was meant to be when he last spoke to us. Higher prices bring tax revenues in.

Perhaps the clearest way to see this story, is to look at the changing Treasury view of the year 2010. Compared to the picture in the Pre-Budget Report, the economy is half a per cent smaller, prices are 0.75% higher and the finances are 6.5 billion worse than expected, but taxes go up 2 billion to recoup some of the money lost.

Public spending is the same as before, but with prices higher, that will make the public spending settlement tougher to deliver than it was going to be.

Comments   Post your comment

  • 1.
  • At 10:38 PM on 12 Mar 2008,
  • Matt wrote:


Does the fact that they've decided to consider Northern Rock inside public ownership but not a factor in these numbers count at all?

  • 2.
  • At 09:57 AM on 13 Mar 2008,
  • robert wrote:

Hi Evan

Nice to see a man admitting an error where there was one - welldone.

Still not entirely happy with this business about the half a percent dissapearing for ever though. As the UK economy in 2007 grew much faster that previously estimated (as it has for a number of years during the last decade).

Therefore if you ''start from here'' I would accept the argument of the missing billions is real; but for the full picture, you surely have to take off that the extra billions generated by an economy that was until last summer - 'overheating' - 3.1% for 2007 is way above trend and I know you know that

By the way; I thought you were going to hos thr Today programme a couple of days a week - I only heard you once!

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