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UK’s budget deficit to last a quarter of a century

    It has been reported that the Conservative Party plans to achieve a budget surplus by 2025. The Centre for Policy Studies has provided an analysis of the changing borrowing forecasts.

    Key points

    1. In 2010-11, the Coalition Government pledged to eliminate the cyclically adjusted current budget deficit by 2014-15. Public sector net borrowing was planned to reach 2.1% of GDP by 2014-15. Substantial progress was made in reducing the budget deficit, which was – on some measures – the highest of any OECD country in 2010. However, both of the budget deficit targets were missed. The cyclically adjusted current budget deficit was 2.5% of GDP in 2014-15 and public sector net borrowing was 5.2% (OBR public finances databank). 
       
    2. In 2015-16, the Summer Budget projected that public sector net borrowing would be in surplus by 2019-20. This target was dropped after the UK’s decision to leave the European Union. It has been reported that the Conservatives will pledge to get public sector net borrowing in surplus by 2025-26. 
       
    3. The last time that public sector net borrowing was in surplus was in 2000-01(OBR public finances databank). This means that public sector net borrowing is due to be in deficit for 25 consecutive years.

    Budget Deficit Graph

    Head of Economic Research Daniel Mahoney responds to the Conservative Party Manifesto’s budget surplus target by 2025

    According to the Conservative Party's fiscal target reported in the press today, the UK is set to reach a budget surplus by 2025-26. This will mean that the UK has lived beyond its means for a quarter of a century.

    While it is quite understandable that Theresa May wants fiscal wriggle room during the Brexit negotiations, this fiscal target is disappointing. It should be seen as a ‘worst case’ scenario. The next government must aim to achieve a budget surplus at an earlier date.

    Daniel Mahoney, Head of Economic Research

     

    Date added: Wednesday 17th May 2017