Following is a summary of where the public finances may be heading.
Britain’s government borrowed £23.5 billion in the year to March 2019, equivalent to 1.1% of annual economic output and the lowest since the 2001/02 financial year.
This is down sharply from a peak of 9.9% of GDP in 2009/10, when the financial crisis triggered a slump in tax revenues and greater spending on some social benefits.
Public debt – the total amount of outstanding borrowing – has fallen much more slowly as a share of GDP and is still more than double its level before the financial crisis at 83% of GDP, excluding borrowing by state-owned Royal Bank of Scotland.
Britain is not alone in struggling to reduce debt against a backdrop of lacklustre growth since the financial crisis, with Germany the only big advanced economy to have a lower debt-to-GDP ratio.
Johnson declined during his leadership campaign to back the government’s existing fiscal rules, which aim to keep the deficit below 2% of GDP during normal economic times, and ensure debt falls as a share of GDP.
Javid has said he will respect this rule when he sets spending budgets for the next financial year in September, but the government says the longer-term future of the fiscal rules is “under review”.
Since coming to power, Johnson has announced a series of costly spending pledges on police, schools and deprived towns, which taken together are likely to add as much as £9bn a year to borrowing if fully implemented.
One-off spending on Brexit preparations and new prison and hospital capacity could cost nearly £7bn, with potential ongoing funding costs not included.
Exact details – crucially including how rapidly the money is expected to be spent – will become clearer in September’s spending round, though planning beyond next year is being deferred until a full spending review in 2020.
Javid has also said he will respond to a public commission that has called for more long-term infrastructure spending.
The public will probably have to wait for Javid’s first budget to learn how fast Johnson plans to implement a campaign goal to raise the threshold at which the 40% income tax rate becomes payable to £80,000 from £50,000.
Similar tax changes in the past have been spread out over several years, delaying the full budget impact which is likely to be about £9bn a year.
Johnson also said he wanted to reduce payroll taxes for lower earners, without giving details.
Credit ratings agency Moody’s said the total cost of all these measures, if fully implemented, would increase the budget deficit by 1.5% of GDP, or roughly £30bn, unless there were other offsetting tax rises or spending cuts.
Analysts at RBC pencilled in a cost of £26bn.
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