In each Economic and fiscal outlook we publish a box that summarises the effects of the Government’s new policy measures on our economy forecast. These include the overall effect of the package of measures and any specific effects of individual measures that we deem to be sufficiently material to have wider indirect effects on the economy. In our March 2011 Economic and Fiscal Outlook, we made adjustments to our forecast of inflation.
In November the Government launched its growth review. The aim of the review was “to identify structural reforms with the potential to improve the business environment and benefit the whole economy; and examine the barriers to growth that affect specific sectors and set out what the Government will do to address them.”a
As part of the growth review, the Government has announced a number of measures in Budget 2011, including changes to the planning system and regulation policy. More details are set out in the Budget 2011 documentation.
Such measures could affect growth. For example, a number of studies point to a link between productivity growth and the operation of planning systems.b However, there remains significant uncertainty around the size of these effects. In the event that these measures have an impact on growth, there is likely to be some lag before the effects are realised; the effects will also depend on how the measures are implemented.
As a result, identifying the quantitative impact of such policies may not be possible for some time. Set against this uncertainty, we judge there is insufficient evidence at this stage to adjust our trend growth assumptions in light of these measures. It is also important to bear in mind the considerable uncertainty that surrounds the baseline estimate of trend productivity growth. To make a small and precisely calibrated change to this estimate would involve a spurious degree of precision.
Budget 2011 also includes a number of other measures which may, in principle, affect our economic forecast. For those measures which directly affect inflation, for example the postponement of fuel duty increases, we have made an explicit adjustment to our inflation forecast. For the remaining measures, such as the increase in the personal allowance, we have deemed the effects to be too small to make explicit adjustments to our forecast that are directly attributable to specific policy measures. The aggregate effect of all the measures announced in Budget 2011 forms part of our overall assessment of the economic outlook.
We were notified of the change of the rate of corporation tax and the one pence per litre reduction in fuel duty in April 2011 too late to include any potential second round effects in the forecast. However, we believe that any such effects would be minimal.