The Chancellor of the Exchequer (Mr George Osborne)
Today the Chief Secretary to the Treasury (Danny Alexander) and I have published and laid before Parliament an updated Charter for Budget Responsibility. This charter must be approved by the House of Commons before it is brought into force. A debate and vote on the charter will be scheduled in the House of Commons for early in the New Year.
The Charter for Budget Responsibility sets out the Government’s approach to operating fiscal policy transparently and managing sustainable public finances in the long-term interests of the UK. The purpose of the charter is to improve the transparency of the Government’s fiscal policy framework. It sets out the Government’s commitment to managing fiscal policy in accordance with clear objectives and targets.
The autumn statement 2014 update of the Charter for Budget Responsibility presents a revised fiscal framework, following a review by the Government.
The existing fiscal mandate, set in 2010, reflected the exceptional fiscal challenge the Government faced. In 2010 the Government said that they would revisit the fiscal rules once the public finances were closer to balance. Since then, the Government have made significant progress on their fiscal consolidation.
Public sector net borrowing as a percentage of GDP has fallen by more than a third since 2009-10 and is forecast to have fallen by half by the end of 2014-15. The Government are forecast to meet their fiscal mandate two years early in 2017-18, having reduced the cyclically adjusted current Budget deficit from its peak of 4.7% of GDP in 2009-10 to 2.6% of GDP in 2013-14. On the OBR’s central forecast, the cyclically adjusted current Budget will be in surplus by 0.7% of GDP in 2017-18.
In this context the horizon on the fiscal mandate can safely be shortened to create a tighter constraint on future fiscal policy choices. The new framework presented today sets a three-year rolling horizon. At Budget 2015, therefore, the target year for the fiscal mandate will be 2017-18.
Both parties in the coalition Government are committed to reducing public sector net debt (PSND) as a percentage of GDP. The OBR forecast that PSND will peak in 2015-16 at 81.1% of GDP, a year later than the current supplementary debt target. The revised Charter for Budget Responsibility sets a new supplementary target for debt to be falling as a percentage of GDP in 2016-17.
Meeting the fiscal mandate and putting debt on declining path will require further difficult decisions to be made by Government. The Government have set out detailed spending plans for 2015-16. Choices will need to be made about the composition of further consolidation beyond 2015-16. In order to meet the fiscal mandate and supplementary debt target set out in the updated charter the Government estimate that on current forecasts around £30 billion of discretionary consolidation is likely to be required over the following two years 2016-17 and 2017-18.