Please sir, can we have some more?

There were few surprises in yesterday’s Budget. As expected, it focused on growth and the majority of the policies announced had been heavily trailed in the weekend newspapers. The fiscal picture did not change much. Potential over-optimism from the Office for Budget Responsibility on inflation and the output gap aside, the Chancellor is still on course to eliminate the deficit by the end of this Parliament.

This is very good news. The biggest danger during a fiscal consolidation programme is that governments water down their proposals due to political opposition or economic difficulties. In a 2009 report, Controlling Spending and Government Deficits, Policy Exchange argued that the preferred ratio of spending cuts to tax increases is around 80:20. Yesterday’s Budget maintained this; and, in this respect, we congratulate the Chancellor for sticking to his guns. Because of these decisions, spending is on course to be reduced to around 40 percent of GDP by 2015 and this will help the long-term growth rate of the economy.