Revised figures pave way for tough Budget

The Chancellor prepared the financial markets for higher taxes and a clampdown on public spending in July's mini-Budget yesterday by changing the assumptions the Treasury uses to make its economic forecasts. On the new basis, the public finances look in worse shape than Ken Clarke, the former Chancellor, predicted in last November's Budget.

Gordon Brown is certain to use the new figures, which were yesterday given a seal of approval by the independent National Audit Office, to paint the previous Conservative government's assumptions as over-optimistic. They are expected to give him ammunition for turning down excessive demands from spending departments and a justification for raising taxes.

Presenting the changed figures and the NAO endorsement as a victory for open government, Mr Brown said: "Budgets must be built on honest foundations. This is the only way to restore public trust in the public finances. This is the first time that any chancellor has opened up the Treasury's forecasting assumptions to such open and independent scrutiny. It means the Budget arithmetic will be based on financial conventions which are open, transparent and accountable."

In a bid to create more openness at the Treasury, Gordon Brown asked the National Audit Office to scrutinise the changed assumptions and say if it considered them reasonable.

Sir John Bourn, head of the NAO, said yesterday: "While the assumptions adopted by the Chancellor are not the only ones which could be reconciled with the evidence, in my opinion they have been arrived at systematically on the basis of the available data and by methods which interpret it in a reasonable way."

The key changes in the assumptions were a revision downwards of the Treasury's long-trend growth forecast from 2.5 per cent to 2.25 per cent and a reduction in the estimated proceeds from Kenneth Clarke's "spend to save" anti-fraud programme.

That initiative predicted savings of pounds 6.7bn could be generated by spending an extra pounds 800m on measures to eliminate errors and fraud from social security claims. By restricting the predicted gains to cash raised immediately from the discovery of an error or fraud, rather than including a figure for indirect effects such as deterrence, the saving is reined back to pounds 4.9bn.

Other changes included a decision not to include future privatisation proceeds in economic forecasts, a measure expected to increase the PSBR by pounds 4.5bn over the next five years, and the use of a flat unemployment assumption, rather than the guess about future trends in the jobless rate that Mr Clarke introduced for the first time last year. That would increase public borrowing by pounds 4.25bn over the five year forecasting period.

The final change will see the Government using market average forecasts for future interest rates rather than an estimate by the Treasury, which might lay the Government open to charges of political interference.

The changed forecasts are retrospective and will be revised again on 2 July to incorporate the changes announced in the mini-Budget.

The change in the long-term GDP growth trend raised eyebrows in the City yesterday, where economists said recent evidence suggested a higher growth rate was sustainable without a threat to inflation.

Economists questioned the relevance of the change, which only takes effect from 1999 onwards. For the next two years, the Treasury uses its actual forecasts for the short-term growth in GDP rather than an estimate of long-term trend growth.

One economist said: "This is largely an exercise in public relations, designed for the consumption of people other than in the City. Everyone knows the plans for three and four years ahead are simply fantasy. They focus on years one and two and those assumptions have hardly changed."

The new basis of calculation puts the PSBR pounds 0.5bn higher in the current fiscal year and pounds 3.25bn higher next year.

Comment, page 23

News
The surrealist comedian at the Q Awards in 2010
people
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Arts and Entertainment
Contestants during this summer's Celebrity Big Brother grand finale
tvBroadcaster attempts to change its image following sale to US
PROMOTED VIDEO
Arts and Entertainment
Sarah Dales attempts to sell British Breeze in the luxury scent task
tvReview: 'Apprentice' candidates on the verge of tears as they were ejected from the boardroom
News
New look: Zellweger at Elle's Women in Hollywood awards on Monday

Actress sees off speculation about her face in an amazing way

News

Florida mother launched a petition to ban the sale of the dolls

Arts and Entertainment
film

Marvel has released first teaser trailer week early after it leaked online

Extras
indybest
Life and Style
CHARGE BOOSTER: Aeroplane mode doesn't sound very exciting, but it can be a (phone) hacker's friend. Turning on the option while charging your mobile will increase the speed at which your phone battery charges
techNew book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone
Sport
Christiano Ronaldo enjoys his opening goal
champions leagueLiverpool 0 Real Madrid 3: Ronaldo and Benzema run Reds ragged to avenge thrashing from their last visit to Anfield
Arts and Entertainment
Awesome foursome: Sam Smith shows off his awards
music22-year-old confirms he is 2014’s breakout British music success
Arts and Entertainment
Sir Nicholas Serota has been a feature in the Power 100 top ten since its 2002 launch
art
News
Call me Superman: one of many unusual names chosen by Chinese students
newsChinese state TV offers advice for citizens picking a Western moniker
News
ebooksAn unforgettable anthology of contemporary reportage
News
Wilko Johnson is currently on his farewell tour
people
News
Let’s pretend: KidZania in Tokyo
educationKidZania lets children try their hands at being a firefighter, doctor or factory worker for the day
News
i100
Voices
'Irritatingly Disneyfied': fashion vlogger Zoella
voicesVicky Chandler: Zoella shows us that feminism can come in all forms
Life and Style
health
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?