Does George Osborne have a £4.4bn black hole in his budget?

Published: 23rd Mar 2016

In brief

Claim

Halting changes to the Personal Independence Payment will create a £4.4 billion “black hole” in the budget.

Conclusion

£4.4 billion isn’t a helpful way to describe the budget’s “black hole” caused by the withdrawal of the changes—it adds up all the spending over the five years to 2020/21. Dropping the policy will make public finances £1.3 billion worse off than they would have been by the end of the Parliament. And the government was already relying on £3.5 billion other savings that have yet to be identified.

“If the Chancellor halts the attack on disabled people, a £4.4 billion black hole is created in the Budget.”

John McDonnell, 21 March 2016

The government’s plans for Personal Independence Payment (PIP), a disability benefit, had been forecast to cut its spending by a total of £4.4 billion over the five years to 2020/21. Those plans won’t go ahead, so all things being equal, government spending will be that much higher over the period than had been predicted.

But it’s not that useful to talk about this figure as a “black hole” in the budget, as was widely done in the last week. It makes more sense to think of its effect on the budget in annual terms, because spending on this sort of measure runs on until policy is changed again. Otherwise you could pick any arbitrary period—ten years say—and then the “black hole” would be twice as big.

The government has been known to present figures in this way too. Last year it announced a “£27 billion improvement in the public finances” that was spread in the same way over five years (and which later disappeared).

In 2016/17, the financial year that’s about to start, the PIP changes were only due to save £15 million according to the Treasury, rising to £1.3 billion in 2019/20.

While the financial position of the government will be £1.3 billion worse than had been forecast that year, the forecast from the Office for Budget Responsibility (OBR) still has the government moving into surplus.

Yesterday the OBR chairman Robert Chote told MPs that that the chance of reaching surplus by 2019/20 isn’t “materially” lower due to the changes to PIP, still at around 55% according to its forecasts.

This forecast had already counted unspecified savings of £3.5 billion towards meeting the surplus that year. These are to be delivered through an efficiency review to conclude in 2018.

Putting this £3.5 billion together with the £1.3 billion that was meant to be saved from the changes to PIP in 2019/20 means that the Chancellor will have to find a total of £4.8 billion from non-protected spending in 2019-20 to make his sums add up.

That’s if the underlying forecast does not change again in the autumn—and forecasts do change a lot between “fiscal events”, as last week’s Budget showed.


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