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MNI (London)
By David Robinson
     LONDON (MNI) - UK Chancellor of the Exchequer Philip Hammond dipped into
the Treasury's box of tricks in Wednesday's Budget, helping him to deliver a
modest fiscal stimulus but he was still unable to show the public finances on
track to hit his goal of balancing them in the next parliament.
     Office for Budget Responsibility head Robert Chote described the Budget as
"a near-term giveaway at the cost of a longer-term takeaway," and he highlighted
the lack of progress in improving the underlying finances.
     The public finances, as previewed by Market News, were flattered by the
scheduled repayments of the Bank of England's Term Funding Scheme (TFS) and the
reclassification of housing associations as private rather than public sector
entities. Absent these changes and the shrinkage in UK net debt appears glacial.
     The OBR said that stripping out the effect of the TFS and the
reclassification of housing associations, "net debt is on a very modest downward
trajectory over the forecast period as a whole."
     Chote noted that in evidence to the House of Lords, a government official
had explicitly acknowledged that the decision to change the rules surrounding
housing associations had been carried out in order to get them off the books.
     The OBR estimated that the reclassification of English housing associations
would reduce debt at the end of 2017-18 by 3.2% of GDP compared to the end of
the 2016-17 fiscal year.
     A source familiar with the OBR's thinking said that while it had to accept
the reclassification of housing associations, what it could do was to highlight
the "fiscal illusion" involved.
     Public sector net debt (PSND) excluding the TFS is projected to barely
decline, falling from 80.2% of GDP in 2017-18 to 79.1% of GDP in 2022-23.
     The BOE's TFS is not viewed as a similarly artificial device. It provides
banks with cheap four year collateralised loans, which could be perceived as
almost risk-free, but, under the accounting rules they are added to public
sector debt because the Treasury indemnifies them.
     Nevertheless, the TFS debt profile helped Hammond because the loans are
repaid just in time to help with the fiscal goal of having net debt falling as a
percentage  of GDP in 2020-21.
     "The repayment of TFS loans after four years reduces the debt ratio
significantly in 2020-21 and 2021-22," the OBR said.
     Public sector net debt was projected to fall from 86.1% of GDP in 2019-20
to 83.1% in 2020-21.
     Wednesday's Budget measures did amount to a fiscal giveaway, of stg6.045
billion in fiscal year 2018-19 and stg6.045 billion in 2019-20 but Chote noted
that the Treasury would have to come up with additional measures to balance the
books if the OBR's forecasts prove accurate.
     Chote said that "At the end of the (five year) forecast you still have a
deficit in excess of 1% of GDP," and he described achieving a balanced budget as
     For the Bank of England, the additional fiscal stimulus will be treated as
adding to near-term demand but the effects will not be sizeable, and the change
in the fiscal arithmetic is likely to be viewed as marginal in the monetary
policy debate.
--MNI London Bureau; tel: +44 203-586-2223; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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