Budget 2010: Public finances deficit £11bn lower than forecast

The chancellor was able to confirm in today's budget that the public finances are healthier than he expected in December, with this year's deficit £11bn lower than forecast. Instead of the £178bn shortfall projected in the pre-budget report, Alistair Darling said the deficit for 2009-10 would be £167bn, helped by lower-than-expected unemployment and stronger-than-expected VAT receipts as the economy emerges from recession. The deficit is also now expected to be lower in future years, falling to £89bn by 2014-15, instead of the £96bn the Treasury had budgeted for. In total, Darling now expects deficits to be a cumulative £100bn lower, by 2013-14. He used the better-than-expected figures to argue that government support for the economy has helped to restore growth, and boost tax revenues – and making immediate cuts, as the Conservatives proposed last year, would have left the public finances in a worse state. "The costs would have been far greater for families and the economy if we had failed to act," he said. "It is clear that our approach is making a difference." If he had heeded the Tories' demands to start reducing the deficit immediately, he said, "I believe we would still be in recession." He pointed out that his promise to halve the deficit as a proportion of GDP over the next four years is, "the fastest deficit reduction plan of any G7 country", adding that if the economy recovers more quickly than expected, the government will be able to restore the public finances more rapidly. Darling said public debt was also expected to be lower than he had previously expected, though it will still continue to rise throughout the next parliament, peaking at 75% of GDP. However, Tory leader David Cameron shot back that Labour should not expect the public to be delighted by the modest improvement in the finances, and the government was still borrowing more than all previous Labour administrations put together. "They're going to carry on spending, carry on borrowing and carry on failing," he said. City analysts were watching closely to see how much of the "windfall" from stronger-than-expected tax receipts the chancellor gave away. The details in the budget red book reveal a total relaxation in the public finances this year of £1.4bn, relatively modest compared to the total improvement in the public finances. Some of that will be clawed back in future years; the finances are £705m tighter in 2012-13 than the pre-budget report suggested.