By Andy Bruce
LONDON (Reuters) -Britain’s former finance minister Kwasi Kwarteng held back official warnings that borrowing was on course to rocket even before he attempted his ill-fated budget plans, new documents from the Office for Budget Responsibility (OBR) show.
Kwarteng’s Growth Plan published on Sept. 23 formed the biggest package of tax cuts in decades and triggered a meltdown in British financial markets, exacerbated by the structure of pension funds.
Even before he published the so-called “mini-budget”, Kwarteng had been widely criticised for failing to publish advice given to him by the OBR, something that unnerved investors.
The OBR, the country’s official forecaster, published that advice this week, in response to an order from the Information Commissioners’ Office.
Dated Sept. 5, the report showed borrowing from 2022/23 through 2026/27 was cumulatively on track to rise by 109 billion pounds ($141 billion) more than the OBR had forecast in March 2022, reflecting higher energy costs and rising inflation.
The forecasts – made faster and with less data at hand than for a normal budget event – did not take into account his plans for sweeping tax cuts, which would have entailed greater borrowing than the OBR projected.
It said Kwarteng was on track to fail the government’s fiscal target of running a current budget surplus in 2025/26, even before his Growth Plan announcement.
“The document published reflects the OBR’s preparatory work sent to the then Chancellor on his first day in office. The draft forecast did not include any policies ultimately announced in the Growth Plan,” a Treasury spokesperson said on Wednesday.
Kwarteng and his Prime Minister Liz Truss lost their jobs as a result of the mini-budget, which ended the Conservative Party’s unbroken 15-year lead over the opposition Labour Party for economic competency in the eyes of voters, according to polling from Ipsos.
While current Prime Minister Rishi Sunak made restoring economic stability a central plank of his leadership, Labour maintains a large lead in opinion polls ahead of a general election expected next year.
“POTENTIALLY LARGE IMPACTS”
The OBR’s report warned Kwarteng that things could pan out worse than it predicted.
“The fiscal update presented here needs to be considered in the context of the elevated risks to economic and fiscal prospects at present… there are several risks that could significantly worsen this outlook,” the report said.
It concluded with a message to Kwarteng about his plans.
“Policies that your government announces in the coming weeks will have potentially large impacts on economic and fiscal outcomes,” the OBR said, adding that they could boost the economy but also add to borrowing, especially in the short term.
In a letter published this week, OBR chair Richard Hughes said energy prices had turned out lower than was assumed since the draft forecasts last September, but interest rates were higher.
Britain ran a budget deficit of 132 billion pounds or 5.2% of GDP in the 2022/23 fiscal year. In March the OBR forecast this would fall to 5.1% in 2023/24, and to 1.7% in four years’ time.
($1 = 0.7753 pounds)
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