Darling’s Budget leaves only £2.8bn leeway

The Budget has revealed an underlying deterioration of £7.5bn in the public finances, as a result of overconfident autumn forecasts and the deteriorating impact of the credit squeeze, according to the Institute for Fiscal Studies.

Chancellor Alistair Darling has been left with almost no room to manoeuvre without breaching the government’s fiscal rules and forecasts will be vulnerable to small fluctuations in spending or receipts, the Financial Times reports.

The IFS estimated the chancellor had £2.8bn leeway against the fiscal rules for 2010-11 – considerably below HM Revenue & Customs’ average forecasting error of £18bn two years ahead.

‘If the downturn is deeper than expected, if he is over-optimistic about the underlying strength of tax revenues, or if political pressure requires further giveaways, then Mr Darling or his successor may have to inflict more pain,’said Robert Chote, IFS director said.

Further reading:

Budget 08: Avoidance swoop to plug economic gap

Budget 08 Special Report and AATV analysis

Read story in the Financial Times