George Obsorne 'wasted Whitehall time and created real economic costs' in last-minute budget manipulation, says Institute for Fiscal Studies

George Osborne has been accused of wasting the time of Whitehall officials and creating “real economic costs” for the country by the respected Institute for Fiscal Studies think tank.

The think tank said that the Chancellor had engaged in last-minute manipulation of departmental budgets ahead of this week’s Budget in order to save himself the embarrassment of having to report to the House of Commons that the deficit was rising, rather than falling. “There is every indication that the numbers have been carefully managed with a close eye on the headline borrowing figures for this year” said the IFS director Paul Johnson. “It is unlikely that this has led either to an economically optimal allocation of spending across years or to a particularly productive use of time by officials or ministers.”

Gemma Tetlow an IFS researcher added that the manipulation might have created “real economic costs” by diverting officials from more valuable work in delivering public services.

The Chancellor left economists stunned on Wednesday when he announced that public borrowing for 2012-13 would come in £100m below the £121bn deficit recorded in 2011-12. Most analysts had expected the Chancellor’s independent Office for Budget Responsibility forecaster to project a deficit some £5bn to £10bn higher than the previous year given that the public finances had shown a year-on-year deterioration between last April and January.

An examination of the OBR’s document revealed that the Chancellor had achieved this unlikely feat by ordering departments to underspend their budgets by £3.4bn in the final two months of the year. Some of this spending – such as payments by Britain to the World Bank – turns out merely to be postponed into future years. And the OBR itself warned that there was a risk some of the delayed payments might end up being paid in 2012-13 after all. The IFS highlighted the contrast between Mr Osborne’s behaviour and his words shortly after taking office in June 2010 when the Chancellor pledged: “From now on we will have to fix the budget to fit the figures, instead of fixing the figures to fit the budget”.

The Treasury last night denied that there had been anything underhand or politically motivated about the surprise departmental underspend revealed in the Budget. An official said that the action had been taken by the Chancellor to avert the “traditional splurge” in departmental spending at the end of the financial year.

Public borrowing figures for February released today showed a marked improvement on the same month in 2012, falling from £11.8bn to £2.3bn. But this was flattered by one-off benefits including the proceeds from the sale of 4G mobile phone spectrum and a transfer of cash from the Bank of England that is expected to be reversed in future years.

The IFS also pointed out today that the poor prospects for the economy which teeters on the edge of a possible triple dip recession means the Government is on course to borrow £70bn more in 2014-15 than it planned at the time of Mr Osborne’s first Budget in June 2010. The think tank said ministers after the next election were likely to face a choice between imposing further deep cuts on departmental budgets by 2017/18, or by raising £9bn through new taxes.