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

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Life and Style
tech

Apple has been hit by complaints about the 1.1GB download

Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

PROMOTED VIDEO
Arts and Entertainment
Actor and director Zach Braff
tv

Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Arts and Entertainment
tv

Life and Style
i100

Arts and Entertainment
The former Doctor Who actor is to play a vicar is search of a wife
film

Matt Smith is set to join cast of the Jane Austen classic - with a twist

Arts and Entertainment
Lionel Messi in action for Barcelona
filmWhat makes the little man tick?
Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Sport
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes hobby look 'dysfunctional'
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

News
i100
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

Property Underwriter

£70-90,000: Saxton Leigh: Our client a London Market Insurer are seeking a Pro...

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Trainee Recruitment Consultant Birmingham

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

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week