'A money illusion': What Hunt's claims on borrowing and growth really mean

The opening paragraphs of the Office for Budget Responsibility's official analysis of the autumn statement is dismissive of the chancellor's optimism.

Important assertions from the OBR:

1) "We now expect the economy to grow more slowly over the forecast period [to 2027-28], leaving the level of real GDP only ½ a per cent higher in the medium term than in our March forecast [which preceded the ONS's upgrading of the size of the economy]".

2) "Inflation is expected to be more persistent and domestically fuelled than we previously thought, falling below 5% by the end of this year but not returning to its 2% level target until the first half of 2025, more than a year later than in March".

3) "Markets now expect interest rates to remain higher for longer to bring inflation under control".

4) "It is mainly due to the chancellor's decision to leave departmental spending broadly unchanged that higher inflation and other forecast changes reduce borrowing by £27bn in 2027-28 compared to our March forecast".

5) "The chancellor spends his windfall on cuts in National Insurance contributions, permanent up-front tax write-offs for business investment and a package of welfare reforms, which together provide a modest boost to output of 0.3% in 5 years".

6) "He still meets his target to get debt falling as a share of GDP in 5 years' time by an enhanced margin of £13bn, but mainly thanks to the rolling nature of the rule giving him an extra year to get there"

7) "And while personal and business tax cuts reduce the tax burden by ½ a percentage point, it still rises in each of the next 5 years to a post-war high of 38 per cent of GDP".

A translation:

First, the OBR is saying that the fall in borrowing that the chancellor boasted about is a case of money illusion. To put it another way, inflation has pushed up wages and profits, and therefore tax revenues.

But inflation has also squeezed resources available for public services and there has been no increase in departmental spending - pretty much all serious analysts would say that there will have to be significant rises in that spending, if vital public services are not to fall apart.

Those rises would wipe out all forecast improvements in government borrowing.

Second, the chancellor's claims that he is massively increasing the productive capacity of the economy, by making permanent those investment allowances for business at a cost of £11bn a year and trying to improve the supply of labour.

But the consequential increase in national income, of 0.3%, is so small it is almost a rounding error.

Third, previous tax-raising measures taken by Sunak and Hunt massively wipe out all tax cuts in the autumn statement, such that the burden of tax is still rising to a 70-year high.

Before this budget, the UK was a low growth economy. The chancellor's 100-plus measures to expand productive capacity will take many years to have any kind of significant positive effect.

The UK will remain a low growth economy for the forecastable future.

This was not an autumn statement that will generate a so-called "feel-good" factor any time soon. It was not an autumn statement presaging an early general election.

The most depressing part of the OBR forecast is this:

"We have revised down our estimate of the medium-term potential growth rate of the economy to 1.6% from 1.8% in March" - or roughly half the growth rate between 1992 and 2008.

The causes of this reduction in our economic potential, it says, is because of demography - few middle aged workers, who tend to work longer hours - and faster right-offs of capital. Blame Gen Z