Contents
Foreword 6
Chapter 1. Executive summary 10
Overview 10
Economic developments since our previous forecast 14
The economic outlook 15
The fiscal outlook 18
Performance against the fiscal targets 28
Chapter 2. Developments since the last forecast 32
Economic developments 32
Data revisions and Blue Book 2015 changes 32
GDP growth since the July 2015 forecast 36
Labour market 37
Inflation 37
The housing market 38
The global economy 38
Fiscal data developments 38
Developments in outside forecasts 39
Real GDP growth 39
Inflation 40
Labour market 40
Public finances 41
Chapter 3. Economic outlook 42
Introduction 42
Potential output and the output gap 42
The latest estimates of the output gap 42
The latest estimates of the output gap 43
The growth of potential output 46
Key economy forecast assumptions 49
Monetary policy and credit conditions 49
Fiscal policy and Spending Review and Autumn Statement measures 51
World economy 53
World trade 53
Other conditioning assumptions 55
Summary 55
Prospects for real GDP growth 56
The short-term outlook for GDP 56
The medium-term outlook 57
Prospects for inflation 60
CPI inflation 60
RPI inflation 61
The GDP deflator 62
Prospects for nominal GDP growth 63
Prospects for individual sectors of the economy 64
The household sector 64
The corporate sector 76
The government sector 77
The external sector 81
Sectoral net lending 86
Risks and uncertainties 87
Comparison with external forecasters 88
Chapter 4. Fiscal outlook 94
Introduction 94
Economic determinants of the fiscal forecast 95
Policy announcements, risks and classification changes 100
Direct effect of new policy announcements on the public finances 100
Contingent liabilities 103
Classification changes 104
Financial sector interventions 105
Public sector receipts 106
Detailed current receipts forecast 107
Changes in the receipts forecast since July 110
Receipts in 2015-16 113
Tax-by-tax analysis 114
Public sector expenditure 123
Definitions and approach 123
Summary of the expenditure forecast 123
Expenditure in 2015-16 128
Spending within departmental expenditure limits(DELs) 129
Annually managed expenditure (AME) 135
Loans and other financial transactions 154
Loans and repayments 157
Transactions in other financial assets 159
Accruals adjustments 161
UK Asset Resolution 162
Central government net cash requirement 162
Key fiscal aggregates 164
Public sector net borrowing 165
Cyclically adjusted net borrowing(the structural fiscal position) 168
Cyclically adjusted current budget 169
Public sector net debt 169
The path from deficit to surplus 171
Deficit reduction under the Coalition 172
The planned path to surplus in 2019-20 178
Prospects for 2020-21 185
Risks and uncertainties 187
International comparisons 187
Chapter 5. Performance against the Government's fiscal targets 190
Introduction 190
The Government's fiscal targets 190
The implications of our central forecast 191
The new fiscal mandate 191
The previous fiscal mandate 193
The new supplementary target 193
The welfare cap 196
Recognising uncertainty 200
Past performance 200
Sensitivity analysis 201
Scenario analysis 204
Annex A. Spending Review and Autumn Statement 2015 policy measures 208
Overview 208
Uncertainty 209
Evaluation of HMRC anti-avoidance measures 218
Assessing the delivery of past measures 221
Departmental spending 223
Indirect effects on the economy 224
Annex B. Housing associations: reclassification and forecast 226
Introduction 226
How will HAs' financial activities affect the public finances? 227
Estimating the effect on PSNB and PSND in outturn 227
Our approach to forecasting HAs 228
The effects on our fiscal forecast 232
The effects on dwellings 236
Uncertainties and sensitivity analysis 238
Table 1.1. Overview of the economy forecast 17
Table 1.2. Fiscal forecast overview 19
Table 1.3. Changes to public sector net borrowing since July 22
Table 1.4. Changes to public sector net debt since July 24
Table 2.1. Contributions to real GDP growth from 2009Q3 to 2015Q1 33
Table 2.2. Contributions to GDP deflator growth from 2009Q3 to 2015Q1 34
Table 2.3. Contributions to nominal GDP growth from 2009Q3 to 2015Q1 34
Table 2.4. Contributions to real GDP growth in 2015Q2 36
Table 2.5. Contributions to nominal GDP growth in 2015Q2 36
Table 2.6. Conditioning assumptions in 2015Q4 37
Table 3.1. Potential output growth forecast 48
Table 3.2. The quarterly GDP profile 57
Table 3.3. Expenditure contributions to growth 59
Table 3.4. Comparison with external forecasts 89
Table 3.5. Comparison with the Bank of England's illustrative projections' 90
Table 3.6. Detailed summary of forecast 91
Table 3.7. Detailed summary of changes to the forecast 92
Table 4.1. Determinants of the fiscal forecast 97
Table 4.2. Changes in the determinants of the fiscal forecast 98
Table 4.3. Summary of the effect of Government decisions on the budget balance 102
Table 4.4. Gross and net cash flows of financial sector interventions 106
Table 4.5. Major receipts as a per cent of GDP 107
Table 4.6. Current receipts 108
Table 4.7. Change to current receipts since July 109
Table 4.8. Sources of change to the receipts forecast since July 111
Table 4.9. Receipts in 2015-16 113
Table 4.10. Key changes to the income tax and NICs forecast since July 115
Table 4.11. Key changes to the VAT forecast since July 116
Table 4.12. Key changes to the onshore corporation tax forecast since July 117
Table 4.13. Key changes to the SDLT forecast since July 119
Table 4.14. TME split between DEL and AME 124
Table 4.15. Total managed expenditure 125
Table 4.16. Changes to total managed expenditure since July 126
Table 4.17. Sources of changes to the spending forecast since July 128
Table 4.18. Central government expenditure in 2015-16 129
Table 4.19. Changes to DEL in 2015-16 since July 130
Table 4.20. RDEL and CDEL spending and changes since July 132
Table 4.21. Welfare spending forecast overview 136
Table 4.22. Welfare spending 137
Table 4.23. Key changes to welfare spending since July 139
Table 4.24. Key changes in disability benefits spending since July 140
Table 4.25. Key changes to public service pensions since July 146
Table 4.26. Key changes to expenditure transfers to EU institutions since July 147
Table 4.27. Key changes to locally financed expenditure and public corporations expenditure since July 150
Table 4.28. Key changes to central government debt interest since July 152
Table 4.29. Reconciliation of PSNB and PSNCR 156
Table 4.30. Changes in the reconciliation of PSNB and PSNCR 157
Table 4.31. Reconciliation of PSNCR and CGNCR 164
Table 4.32. Changes in the reconciliation of PSNCR and CGNCR 164
Table 4.33. Public sector net borrowing since July 167
Table 4.34. Changes in public sector net debt since July 170
Table 4.35. Fiscal aggregates 171
Table 4.36. Comparison with European Commission forecasts 188
Table 4.37. Comparison with IMF forecasts 188
Table 5.1. Fiscal aggregates relevant to the Government's fiscal targets 191
Table 5.2. Changes in the profile of net debt since July 196
Table 5.3. Performance against the welfare cap 198
Table 5.4. Illustrative debt target sensitivities in 2019-20 204
Table 5.5. Key economic and fiscal aggregates under alternative scenarios 207
Charts
Chart 1.1. The effect of Government decisions on public sector net borrowing 12
Chart 1.2. Contributions to public sector net borrowing changes since July 13
Chart 1.3. Selected vintages of ONS real GDP estimates and OBR forecasts 15
Chart 1.4. Real GDP growth fan chart 18
Chart 1.5. Public sector net borrowing 20
Chart 1.6. Fiscal consolidation over two Parliaments 25
Chart 1.7. The impact of Government policy decisions on the forecast since March 26
Chart 1.8. Change in real RDEL from 2015-16 27
Chart 1.9. Real growth in departmental current and capital spending 28
Chart 1.10. Public sector net borrowing fan chart 29
Chart 2.1. Selected vintages of ONS real GDP estimates and OBR forecasts 33
Chart 2.2. Forecasts for real GDP growth in 2015 39
Chart 2.3. Forecasts for CPI inflation in 2015Q4 40
Chart 2.4. Forecasts for the claimant count in 2015Q4 41
Chart 3.1. Range of output gap model estimates 43
Chart 3.2. Cyclical indicator and the filter-based estimates of the output gap 45
Chart 3.3. Multivariate filter-based estimates of the output gap 45
Chart 3.4. Estimates of the output gap in 2015 46
Chart 3.5. Estimates of the output gap in 2016 46
Chart 3.6. Contributions to potential output growth from 2015Q3 47
Chart 3.7. Potential output forecasts 49
Chart 3.8. Bank rate 50
Chart 3.9. Global bond yields 50
Chart 3.10. Successive forecasts of trade intensity 54
Chart 3.11. Sterling effective exchange rate assumption 55
Chart 3.12. Equity prices assumption 55
Chart 3.13. Contributions to monthly output growth 56
Chart 3.14. Contributions to average quarterly GDP growth 58
Chart 3.15. The output gap 58
Chart 3.16. Projections of actual and potential output 58
Chart 3.17. Real GDP growth fan chart 59
Chart 3.18. CPI inflation 61
Chart 3.19. RPI inflation 62
Chart 3.20. GDP deflator 63
Chart 3.21. Real consumption wage and real consumption 65
Chart 3.22. Real household disposable income per capita 68
Chart 3.23. Contributions to real household income growth 68
Chart 3.24. The household saving ratio 69
Chart 3.25. House price inflation forecast 70
Chart 3.26. Residential property transactions forecast 71
Chart 3.27. Residential investment as a share of nominal GDP 72
Chart 3.28. Household gross debt to income 74
Chart 3.29. Household net worth relative to household income 75
Chart 3.30. Household debt servicing costs 76
Chart 3.31. Business investment as a share of GDP 77
Chart 3.32. General government consumption 78
Chart 3.33. Government consumption and government investment 79
Chart 3.34. UK export market share 82
Chart 3.35. Contributions to import-weighted domestic demand and import growth 84
Chart 3.36. Net trade contribution to real GDP 85
Chart 3.37. Current account balance as a share of GDP 86
Chart 3.38. Sectoral net lending 87
Chart 3.39. Comparison of forecasts for the level of GDP projections 90
Chart 4.1. The effect on the population age structure of moving to the latest ONS population projections 100
Chart 4.2. The effect of Government decisions on public sector net borrowing 103
Chart 4.3. Resource DEL spending in cash terms 133
Chart 4.4. Year-on-year real growth in resource DEL spending 134
Chart 4.5. Change in real RDEL from 2015-16 134
Chart 4.6. Resource DEL as a share of GDP in successive Parliaments 135
Chart 4.7. Successive forecasts for spending on disability benefits 141
Chart 4.8. Successive revisions to the universal credit rollout assumption 142
Chart 4.9. Expected proceeds from major asset sales 161
Chart 4.10. Total public sector spending and receipts 168
Chart 4.11. Sources of deficit reduction from 2009-10 to 2014-15 173
Chart 4.12. Sources of changes to the tax-to-GDP ratio (2009-10 to 2014-15) 175
Chart 4.13. Sources of changes to welfare spending (2009-10 to 2014-15) 176
Chart 4.14. Sources of changes to RDEL spending (2009-10 to 2014-15) 178
Chart 4.15. Sources of deficit reduction from 2015-16 to 2019-20 180
Chart 4.16. Sources of changes in the tax-to-GDP ratio (2015-16 to 2019-20) 181
Chart 4.17. Sources of changes to welfare spending (2015-16 to 2019-20) 182
Chart 4.18. Sources of changes to welfare spending (2015-16 to 2019-20) 183
Chart 4.19. Sources of changes to RDEL as a share of GDP (2015-16 to 2019-20) 185
Chart 4.20. Fiscal consolidation over two Parliaments 186
Chart 5.1. Episodes of 'normal' and 'non-normal' times since 1957 193
Chart 5.2. Year-on-year changes to the debt-to-GDP ratio 195
Chart 5.3. Public sector net borrowing fan chart 201
Chart 5.4. Receipts fan chart 203
Chart 5.5. Real GDP growth. central forecast and illustrative scenarios 206
Boxes
Box 2.1. Productivity revisions over the recession and recovery in the UK and US 35
Box 3.1. The economic effects of policy measures 51
Box 3.2. The effects of the National Living Wage 66
Box 3.3. Government consumption as a share of GDP 80
Box 3.4. The under-performance of nominal exports of goods and services 82
Box 4.1. Anticipating the implementation of ONS classification decisions 105
Box 4.2. Updates to fiscal forecasting models 112
Box 4.3. Impact of the Summer Budget 2015 welfare package 143
Table A.1. Treasury scorecard of policy decisions and OBR assessment of the uncertainty of costings 210
Table A.2. Example of assigning uncertainty rating criteria. 'Pensions automatic enrolment. align with start of tax year' 213
Table B.1. HAs' effects on the public finances. July 2015 pre-measures 232
Table B.2. HAs' effects on the public finances. July 2015 post-measures 233
Table B.3. The estimated effects of the July measures on HAs 234
Table B.4. Central government capital grants to HAs 234
Table B.5. HAs' effects on the public finances. November 2015 post-measures 235
Table B.6. The estimated effects of the November measures on HAs 236
Table B.7. HAs' effects on the public finances. latest forecasts in detail 236
Table B.8. Sensitivity analyses for 2020-21 239
Annex Charts
Chart A.1. OBR assessment of the uncertainty of scorecard costings 216
Chart A.2. Differences between original and revised estimates of average revenue per year from anti-avoidance measures 220
Chart A.3. Difference between timing of yield between original costing and current estimate 221
Chart B.1. HAs' new builds 237
Table 3.A. Illustrative path of NMW and NLW 66
Table 4.A. Tax credits. reallocations and recostings 143
Table 4.B. Marginal cost of universal credit. reallocations and recostings 144
Table 4.C. Other reallocations and recostings 144
Box Charts
Chart 2.A. Current and previous estimates of US and UK productivity growth 35
Chart 3.A. Historical and international comparisons of government consumption 80
Chart 3.B. Nominal exports compared with our March 2012 forecast 83