Government's task in eliminating the deficit just got more challenging still

Telegraph
"At first glance, forecasts for the economy and the public finances from the Government’s new Office of Budget Responsibility do not look quite as alarming as widely billed. But then first impressions can always be deceptive. Scatch the surface, and the challenge facing the Government on deficit reduction still looks quite bad enough. .....I guess all this will be siezed on as vindication by Alistair Darling, after allegations by the new Government that he had cooked the books. Unfortunately, the rest of it doesn’t look too good for “honest” Alistair.

Lower growth means that the size of the structural deficit – that is the amount the Government still has to borrow to fund spending even after the economy has returned to normal – will remain stubbornly high. Indeed, according to the OBR it will still be at 2.8 per cent by 2014/15, with the actual deficit at 3.9 per cent way in excess of the European Union limit of 3 per cent.Given the Government’s aim of eliminating the structural deficit in one parliament, that means there is even more work to be done than previously thought. Or put another way, more spending cuts and more tax increases. If the Government embarks on such an implied squeeze in next week’s Budget, that in turn may cause the OBR further to trim its growth forecasts.