Mr Osborne is offering a vision for the next Parliament of rising incomes, debt reduction and a little less austerity.
The independent Office of Budget Responsibility is forecasting five years of good growth, with UK GDP growth averaging 2.4% a year, faster than for any other major industrialised economy bar the US. The OBR expects two of the big engines of growth to start firing, with business investment forecast to rise by over 30% in the next Parliament, as well a sustained period of rising household incomes. This chimes with our latest CFO Survey which found large UK corporates are forecast to increase investment by 9% this year, and raise wages by 2.9%. The UK economy looks in pretty good shape.
The Budget contains a raft of tax measures but, cumulatively, they are too small to have anyone scrambling to change their forecasts for UK GDP growth.
From a macroeconomic point of view, the most striking change is on fiscal policy. For the last year of the next Parliament, 2019/20, Mr Osborne has pencilled in a significant easing of fiscal policy. By trimming £16 billion off his planned budget surplus in 2019/20, Mr Osborne can ease up on austerity at the end of the Parliament and continue to meet his target of eliminating the deficit.
This has a significant bearing on debate about the scale of future austerity. In December the OBR forecast that by 2019/20 the share of GDP accounted for by public spending would drop to the lowest level since 1938/9. By reducing the size of the planned surplus for the end of the next Parliament Mr Osborne can end austerity a year early, leaving the share of GDP accounted for by spending dropping to 1999/2000 levels.
The austerity ahead looks a bit less intimidating. But in the next couple of years the pace of spending cuts will accelerate. Whatever happens on 7th May a major squeeze on public spending lies ahead.
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