Number 10 may have been reluctant to comment this morning on revelations by the FT’s Chris Giles about a £12bn ‘black hole’ in the public finances but Lib Dems, cornered at their conference in Birmingham, were more open.
Senior Lib Dem MPs quizzed on Monday suggested they were not entirely surprised by the 25 per cent increase in the structural deficit, but not surprisingly, are still not in any mood to back further cuts to bring it under control.
As other commentators have mentioned, the FT’s estimates of a £61bn structural deficit in 2011/12, as opposed to the £49bn forecast by the Office for Budget Responsibility, will cause a major headache for chancellor George Osborne.
Having repeatedly insisted that there is no need for a Plan B to bolster the Treasury’s existing deficit reduction plans, Mr Osborne is unlikely to change his mind even if he now has less spare capacity than the OBR predicted.
However, in the face of sluggish economic growth and slippages in deficit reduction, his chances of bringing the budget into surplus by 2015/16, as promised, are looking ever more unlikely.
Jim Pickard
Kiran Stacey