Healthier-than-expected tax receipts, the absence of any immediate post-referendum slowdown in growth and measurement changes are set to lower borrowing forecasts at next week’s Budget by £29bn between 2015-16 and 2020-21. Such a revision would leave borrowing projections for the remainder of the Parliament below those expected at Autumn Statement 2016, but still well above pre-referendum forecasts.
Despite having projected fiscal headroom of £31bn (or 1.4 per cent of GDP) by 2020-21, continued economic and fiscal uncertainties mean the Chancellor is likely to continue to steer a steady course towards gradual deficit reduction. But within the existing envelope, there remains significant scope for reform and radicalism in the Budget. In this note we consider the key structural challenges that the Chancellor should aim to tackle – from raising investment and productivity, to reforming the UK’s shrinking tax base and addressing persistent disparities across generations, regions and income groups.