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Business Comment

David Prosser: Scrapping the PBR now suits everyone, including George Osborne

Outlook: For a Chancellor keen to impose the hair shirt, it will be useful not to have to revise worrying public finance forecasts in the light of better

There are a number of reasons to applaud George Osborne's decision to dump the pre-Budget report, an announcement that is expected from the Chancellor shortly. Not least, a single annual Budget should ordinarily be sufficient for the Treasury to set out its plans – and now we are moving past the financial crisis, a second mini-Budget in the autumn is unnecessary.

The PBR, introduced by Gordon Brown more than a decade ago, was always going to be a tempting opportunity for chancellors to indulge in a spot of political grandstanding. So it proved with Mr Brown, who regularly used his statements to crow about populist policies that he would then launch all over again in the Budget proper.

Although Alistair Darling, Mr Brown's Chancellor once he moved into No 10, was sometimes guilty of the same tricks, he too had begun to make the case for dropping the PBR before the electorate intervened in May. Happily, Mr Osborne agrees. In fact, he could hardly do otherwise, given the demands he is making of other departments for cut-backs and restraint. The PBR has become an expensive waste of the Treasury's resources – a simple autumn statement on the state of the public finances should be much cheaper to produce.

Still, dumping the PBR this year may also reflect a bit of opportunism on the part of the latest Chancellor. Mr Osborne's spending cuts will now have to be based on the forecasts he made about the public finances in June's emergency Budget, which are already beginning to look overly pessimistic (spending has come in below expectations so far this financial year and borrowing has been lower than predicted too).

For a Chancellor keen to impose the hair shirt, it will be useful not to have to revise those forecasts in the light of the better data. That's especially true given the renewed focus on Mr Osborne's insistence that the draconian cuts he is determined to deliver are necessary to prevent Britain's debt crisis spinning out of control.

It is not just Ed Balls, the Labour leadership candidate, who has been making a compelling case for why the Chancellor is going too far too fast – the International Monetary Fund said something very similar last week.

Divided on debt across the Atlantic

To give Mr Osborne his due, the polling evidence seems to suggest that public opinion at least is on his side on deficit reduction. A survey published by the BBC yesterday says six out of 10 people are in favour of cutting debt, though researchers don't seem to have asked by how much (and there is precious little consensus on where the axe should fall).

The most interesting thing about the BBC's poll is that its World Service arm has conducted similar research in 25 other countries – and come up with some markedly different results. Most noticeably, public opinion in the US is less solidly behind deficit reduction: 52 per cent of Americans prioritise it compared to 60 per cent here.

That different emphasis may explain why President Obama has again been talking about using government spending to stimulate the economy, using a Labor Day speech last night to unveil further details of his plans to pump $50bn into transport infrastructure.

Why the different moods in the US and the UK? One answer may be the issue of joblessness. The American labour market has not proved flexible enough to cope with the economic downturn and unemployment has risen to 10 per cent. In the UK, strategies such as short-time working and unprecedented pay restraint have kept unemployment at below 8 per cent and the figure is falling.

The question now is whether Britain can go on managing unemployment successfully while shedding large numbers of public sector workers, a process that official data reveals is only just beginning. If not, will people remain supportive of the Chancellor's deficit reduction plans?

Car sales are going nowhere for some time

In the context of all these fears, it is hardly surprising that people are less willing to spend thousands of pounds on a new car than they once were. Indeed, the surprise about the 17.5 per cent fall-off in new car registrations last month, compared to August 2009, is actually that the decline has not been worse.

Now that scrappage has bitten the dust, sales to private buyers have begun falling at an alarming rate – they were 38 per cent down in August. What has so far saved the motor industry from total relapse into the darkest days of the recession has been orders from corporate buyers. Having postponed the renewal of their fleets until the economic recovery began, companies have spent more on new cars this year than many analysts expected. The overall figures have thus been better than they might otherwise have been.

Let us hope this continues, for there is little prospect of an improvement in private sales any time soon. Every indicator of consumer confidence suggests households are becoming less likely by the day to sanction big ticket purchases. Yesterday's retail sales data – these figures have been surprisingly resilient in recent times – shows appetite for smaller purchases, too, may be starting to diminish.

At the current rate, total car sales in the UK this year are likely to be marginally ahead of 2009. But the last two months have been so disappointing that there is no certainty of beating last year. And with VAT due to rise to 20 per cent in January, a tax increase that is particularly noticeable on larger spending commitments, next year isn't looking too clever either.

We may have bemoaned the fact that scrappage gave such a boost to foreign motor manufacturers, but don't be surprised to hear misty-eyed calls for its return if the economic picture darkens in the months ahead.