This briefing explores the Chancellor's plan to target a surplus on the structural current budget by 2017/18.
Figures from the Office for Budget Responsibility show that the Government is planning to go further than its fiscal mandate to eliminate the structural deficit within five years;
- As of earlier this year, this means it is targeting a surplus on the structural current budget of £15bn by 2017/18*;
- The Autumn Statement will show us whether the £15bn structural surplus may be even higher by 2018/19*;
- The reasons for this structural surplus are not clear, but it is likely that the Government is seeking to put money aside to deal with the long-term challenges of an ageing population, which look set to drive public spending and debt up again in the 2030s;
- A better way to meet these long-run challenges is to spend the structural surplus on productivity-enhancing measures, like investment in skills, research and childcare;
- The Chancellor has a choice to make about how he meets the long-term economic challenges: more cuts or more investment.
Commenting on the briefing, Emran Mian, Director of the SMF said:
“In this Autumn Statement the Chancellor will report progress towards eliminating the structural deficit; and describe his plans for going further in the next Parliament to run a surplus.
“The problem he faces is low productivity growth in the economy. If this stays stuck anywhere near as low as it is at present, then the UK could be facing a deficit rising to over 100% of GDP in the medium term.
“While running a structural surplus in the next Parliament sounds like responsible fiscal planning, spending to raise productivity is the better choice for a future with an ageing population”
* The 2013 Autumn Statement gave revised figures for the Autumn Statement, pointing to a structural surplus of £13bn by 2017/18 and £32bn by 2018/19. The SMF’s argument in this briefing remains applicable to these new figures.