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Provide sound public finances, fiscal credibility and a balanced budget

Last updated: 09:26am 19 May 2020

Sound public finances, built on fiscal credibility and a balanced budget by the middle of the next decade.

Conservative Party Manifesto 2017, p.62

Our verdict

One of the principal jobs of any government is to look after the public finances. Essentially that means generating revenues, mainly through taxation, and managing expenditure. As long as expenditure does not exceed revenue, a government can be said to have achieved a balanced budget or else to be in surplus. If expenditure is greater than revenue, the government is in deficit. The UK government has been in deficit every year since 2002. This policy is a promise to deliver sound public finances built on a balanced budget by 2025.

Under this government, the deficit reduced from £37.6 billion in the calendar year 2017, to £32.3 billion in 2018. Things are moving in the right direction. That said, the government has made many claims of the end of the period of austerity, which the Institute for Fiscal Studies (IFS) does not believe are compatible with this policy pledge, suggesting that promises to increase public spending threaten to hamper attempts to balance the budget.

Also, in March 2019, the Office for Budget Responsibility (OBR) published its Economic and fiscal outlook, in which it said:

“The Government’s stated ‘fiscal objective’ is to balance the budget by 2025-26 and past forecast performance suggests that it now has a 40 per cent chance of doing so by the end of our forecast in 2023-24.”

It goes on to say an ageing population and the potential impact of Brexit make “the medium-term outlook more than usually uncertain”.

There has been a reduction in the deficit under this government, but independent forecasts from both the IFS and the OBR make clear there is no guarantee of a balanced budget by 2025. This policy was never going to be ‘done’ – its time frame is outside the expected term of the government – but we think the falling deficit is enough to give it a rating of ‘in progress’.

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