Budget 2015: Extra cash cuts borrowing
18 March 2015
Author: Rupert Saunders
The Chancellor resisted the opportunity to use an estimated £6bn Budget windfall as a pre-election 'giveaway' electoral sweetener and, instead, will use the money on the rather more mundane task of paying down the nation's debt.
The windfall occurs primarily because low inflation has kept down interest payments on existing government debt and index-linked rises in welfare payments.
Putting the money back into the bank allowed the Chancellor to announce that UK borrowing as a percentage of GDP would start to fall one year earlier than expected. It will be 80.4% of GDP in the current financial year, falling to 80.2% in 2015/16 and 79.8% in 2016/17.
The deficit (the difference between the amount the country borrows and the amount it makes) as a percentage of GDP will drop from 5% this year to 4% next year and then 2% in 2016/17. The Chancellor suggested the country would be 'back in the black' by 2018/19 when there would be a £5.2bn annual surplus.
The government will be borrowing £5bn less than previously forecast over the period.
The Chancellor was noticeably reticent to talk about inflation, predicting it would be 0.2% this year but offering no forecasts for 2016 or 2017. That figure is well below the 1.2% predicted in the autumn statement.
However, he did confirm that the Monetary Policy Committee would still be working to a 2% inflation target.