Philip Hammond was on course to deliver the Tory holy grail of a balanced budget but chose to go on a borrowing binge instead, the Government’s oversight body has revealed.

The Office of Budget Responsibility (OBR) also said the Chancellor’s Budget plans were heavily reliant on an orderly Brexit, and a chaotic no deal was impossible to predict. 

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The OBR forecasts were broad brush as a disorderly Brexit could have “severe short-term implications for the economy, the exchange rate, asset prices and the public finances”.

It added: “The scale would be very hard to predict, given the lack of precedent.”

The Herald:

The warning undermines government assurances that the £30 billion of extra spending announced in the Budget, most of it for the NHS in England, would carry on regardless of a Brexit deal. 

The OBR also said it assumed there would be a “two-year transition period” immediately after Brexit, rather than the 21-month period currently planned to end in December 2020.

However it said that would “delay the decline in trade intensity” expected outside the EU.  

Read more: What does UK Budget actually mean for Scotland?

The Conservatives have promised to eliminate the deficit ever since returning to office in 2010, when then chancellor George Osborne said it would happen by 2015.

However the target date was repeatedly extended and missed and is now 2025/26. 

The OBR’s Economic and Fiscal Outlook, published alongside the Budget, said healthier tax receipts, lower borrowing and better employment figures meant the goal had been met. 

The cumulative boost to GDP meant the deficit was on track to disappear in 2023/24, with a £3.5bn surplus predicted, but Mr Hammond chose to borrow.

“The Budget spends the fiscal windfall rather than saving it,” the OBR said. 

The reason was Theresa May’s promise in June on an extra £20bn a year for the NHS, a promise that will be “financed entirely through borrowing”.

The OBR now predicts a deficit of £19.8bn in 2023/24, or 0.8 per cent of GDP, instead of a surplus, down from £39.8bn or 1.9% of GDP last year.

“The new multi-year settlement for the NHS raises the deficit substantially in every year. Further measures announced in the Budget raise borrowing in the near term but reduce it slightly in the medium term. Taken together they turn the £3.5bn surplus in our pre-Budget measure forecast for 2023/24 into a £19.8bn deficit.”

It said hitting the balanced budget objective in 2025/26 now looks “challenging”.

The OBR also set out new growth forecasts which were slightly up on its March outlook.

Although GDP growth was revised down in the current year from 1.5% to 1.3% because of the extreme winter weather, it improved or stayed the same in future years.

Growth in 2019 is now forecast to be 1.6% (compared to 1.3%) in March, then 1.4% in 2020 and 2021 (was 1.3% in both years), 1.5% (1.5%) in 2022 and 1.6% in 2023.

Mr Hammond said the OBR had forecast “resilient” growth. 

However it remains weak by historic levels. The OBR also noted that the UK economy was 2% to 2.5% smaller than it would have been had there not been an EU referendum in 2016.

“The average quarterly growth rate has slowed from 0.6% between 2013 and 2015 to 0.4& per cent since the beginning of 2016, taking the UK from near the top of the G7 growth league table to near the bottom.”

Borrowing as a percentage of GDP is due to fall from a peak of 85.2% in 2016/17 to 75% of GDP in 2022/23. The national debt is set to grow to almost £2 trillion in the next five years, from £1,779bn last year to £1,896bn in 2023/24.

However Mr Hammond said his plans were still far better than Labour’s.

He told MPs: “While we are working to get Britain’s debt down, to end the nightmare of wasting over £50bn a year on interest, the party opposite would do the opposite. Their plans would increase tax and borrowing by a thousand billion pounds, taking our debt-to-GDP ratio soaring to well over 100%. 

“A reckless and irresponsible policy from a reckless and irresponsible party.”

Labour leader Jeremy Corbyn said the government was presiding over a weak economy.

He said: “Economic growth in the first half of this year was the slowest since 2011, the last year that we had the lowest growth of any major economy. This is not a strong economy but a weak one, with chronically low investment, low wages and low productivity, and the uncertainty caused by this Government’s shambolic handling of Brexit is making things worse.”

Reacting to the warning on a No Deal Brexit, Carolyn Fairbairn, director general of the CBI, said: “There is no hiding from the dark clouds of Brexit uncertainty. The Chancellor has made clear this Budget will need urgent attention in the event of no deal, showing yet again the seriousness of the situation and the need to get a good deal over the line.”

Robert Colvile, director of the Centre for Policy Studies thinktank, said: “It is clear that this was ultimately not a Brexit Budget, but an NHS Budget. The overwhelming majority of the extra spending proposed will go towards meeting the pledge to increase health spending.

“That the Chancellor has managed to do this without increasing personal taxes is impressive, although it comes at the price of ensuring we stay in deficit rather than surplus.”