UK Budget: first reflections

Very much as expected, the 2013 Budget envisages a higher level of public borrowing, and a corresponding higher level of public sector net debt, than forecast previously.

Measured on an underlying basis, the budget deficit is expected to be £121 billion in the current financial year and in the financial year 2013-14, the budget deficit is expected to remain at this level. This is around £8 billion higher than forecast previously.

Current tax receipts are forecast to grow by a little over 4% in 2013-14 – somewhat above the assumed increase in nominal GDP. The result is that the tax receipts/GDP ratio is expected to increase to 38.4%, up from 38% in 2012-13. Current spending, meanwhile, is forecast to grow by around 2½% in 2013-14, slowing to growth of just 1% in 2014-15.

Over the period 2013-14 to 2017-18, the cumulative underlying budget deficit has been revised up by more than £50 billion since the Autumn Statement was published in December 2012. Reflecting this, public sector debt is expected to reach £1½ trillion by 2015-16, equivalent to 85% of GDP as against the c75% of GDP in 2012-13.

On a brighter note, the increase in the personal tax allowance to £10,000 in 2014-15 can be expected to support consumer spending, and taken in conjunction with measures announced to promote housing market activity, and the prospect of further monetary easing in the summer, the outlook for the economy is better than it might otherwise have been.

James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccla