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The Coalition’s Programme for Government set out that deficit reduction, and continuing to ensure economic recovery, is the most urgent issue facing Britain.
The Government received many encouraging responses to the plans. Many of the comments were supportive of the Government’s approach, welcoming both the transparency and being given a chance to have their say in the difficult choices the Government must make. The responses also made a number of suggestions to tackle the deficit, ranging from significant benefit and tax reform to specific examples of where efficiencies could be achieved in the public sector.
The Chancellor announced action to tackle the deficit and reduce the national debt as a share of GDP at the Budget on 22 June 2010. The Budget announced tax measures, including raising the main rate of VAT to 20 per cent from 4 January 2011. In addition, the Budget announced further reductions to government spending, including specific welfare measures such as switching the indexation of benefits, tax credits and public service pensions to Consumer Price Index from 2011-12 and reforming the Disability Living Allowance gateway from 2013-14.
The Budget also announced additional reductions in current spending totals of £30 billion a year by 2014-15. Of the action the Chancellor announced in the Budget, 80 per cent of the further reduction in the deficit by 2014-15 comes from reductions in public spending.
Taking into account the action the Government announced at the Budget, the independent Office of Budget Responsibility’s Budget forecast projects that:
The Government’s forward-looking fiscal mandate is to achieve cyclically-adjusted current balance by the end of the rolling five-year forecast period. At this time of rapidly rising debt, the fiscal mandate will be supplemented by a target for public sector net debt as a percentage of GDP to be falling at a fixed date of 2015-16, ensuring that the public finances are returned to a sustainable path.
On the basis of the measures announced by the Chancellor, the Budget has set policy consistent with the mandate for fiscal policy set by the Chancellor. The OBR judges, on the basis of its central forecast, that the Government has a greater than 50 per cent chance of meeting its fiscal mandate and of meeting the supplementary debt target.