Chapter 2, An audit of the public finances

2. An audit of the public finances The January 2002 IFS forecast suggests that the current budget surplus in 2001–02 will be £14.0 billion. This is £2.9 billion larger than that forecast in the November 2001 Pre-Budget Report (PBR). This is due to a similar level of receipts combined with the fact that continued departmental underspends seem probable, although public sector net investment does look likely to hit the government’s target. The January 2002 IFS forecast suggests that there will be a surplus on public sector net borrowing (PSNB) in 2001–02 of £1.6 billion compared with the £1.4 billion deficit forecast in the November 2001 PBR. In the medium term, the January 2002 IFS forecast is that receipts will be at a similar level to the November 2001 PBR forecast though public spending will be higher. In part this is due to the additional cost of new measures to which the government has committed, not yet being included in the Treasury’s projections. These include the new tax credits for families with and without children. In addition, our baseline assumption is that public spending as a share of national income will remain constant in 2004–05 and 2005–06 rather than decline as assumed in the PBR. The Budget will need to confirm the cost of the new measures and decide how much spending to allocate to the July 2002 Spending Review. The Chancellor will also need to decide how much caution he would like in his public finance plans – i.e. the size of ...