I must admit that when I wrote yesterday’s post, I did not expect it to be that high. I still stand by the general principle – when demand-led items improve, use them for the debt. ‘Demand led’ meaning: caused by better than expected economic outcomes – better revenues, better AME caused by lower unemployment etc.
Another way of looking at it might be: do your structural adjustments to the deficit through DEL, and don’t frig around with them according to the cyclical changes in the budget position. So no using hip operations to adjust macro demand.
But £21bn is an awful lot of money – enough to cut income tax by 4p according to Ed. And not all economic indicators are strong (Money yesterday looked weak to me; so too is bank lending according to David Smith). IF the feared double-dip arose, and the government had done nothing with its new fiscal room, would it not regret it? Or would such a ‘failure of discipline’ so early in the recovery cycle annoy the bond markets too much?
This is the sort of decision that makes Chancellor-ships. Intriguing.
UPDATE: Note that the FT thinks the figure will not be as good as Ed seems to. For reasons related to Tim’s concerns (see below)