George Osborne
George Osborne

Lucky George Osborne. Facing perhaps his last significant political moment in the form of next month’s Budget, the UK chancellor of the exchequer suddenly has the chance of producing a bang not a whimper.

His statement on March 18 is likely to be more substantive than appeared possible after December’s Autumn Statement. Officials now expect him to bask in three pieces of good news.

Last week it became clear that this year’s deficit is likely to be lower than forecast. Public borrowing of £74bn in the first 10 months of the 2014-15 financial year is already £6bn lower than in the corresponding months of the previous year, and there are still some self-assessment income tax receipts left to count. (The January 31 deadline for filing a return fell on a Saturday this year, so last-minute submissions failed to make it into that month’s figures.) When everything is properly tallied next month, Mr Osborne could have an unexpected windfall of a couple of billion.

More important, though, are the longer-term public finances. Here, the Office for Budget Responsibility will have to make some changes to its forecasts to reflect lower inflation and oil prices.

Falling inflation, which lowers the servicing costs of index-linked government bonds, was already saving the exchequer about £3bn a year at the time of the Autumn Statement. With inflation likely to be still lower than the government then assumed, we can expect a further gain to improve the public finance forecasts.

Oil prices, too, have fallen — well below the $83 a barrel assumed in the December OBR forecast. This also helps the public finances, lifting profits and therefore tax receipts far more than it hurts North Sea oil revenues — or so the OBR believes. And the fiscal watchdog is likely to assume that, as well as providing a temporary boost to demand, cheaper oil increases the supply potential of the economy — for example, by raising effective pay levels for those who drive to work.

This translates into higher growth forecasts and lower expected borrowing — a further windfall for the exchequer. Together with low inflation, it could give Mr Osborne a significant improvement in the structural outlook of the public finances.

The OBR will have to guess the size of the good news, but it would not be outlandish to expect a permanent underlying improvement of £5bn a year in the borrowing figures throughout the forecast. That is the equivalent of a £1,000 annual gift to 5m people, and enough to change the Budget from a limp pre-election statement to one that sets the agenda for the campaign — for both the Conservatives and their Liberal Democrat coalition partners.

Choices have therefore opened up for Mr Osborne. He could reduce the scale of assumed spending cuts in the next parliament, drawing some of the sting from Labour accusations that he is an ideological zealot wanting to slash public services to the levels of the 1930s.

He could reduce taxation in a way acceptable both to the Tories and the Lib Dems, such as further raising the tax-free personal allowance in income tax. Or he could grease the wheels of a third tax simplification — adding to the reforms to annuities and stamp duty made in his most recent fiscal statements. He has asked officials to bring ideas to his office in the Treasury.

None of the options is entirely risk free for the chancellor or the Conservatives. Cutting taxes or spending more dilutes the political argument that voting Tory is necessary to finish the job of deficit reduction.

But goodies to be showered on the electorate can be presented as a dividend for the hard work of the past five years. And this is likely to prove too tempting for Mr Osborne to resist on March 18.

chris.giles@ft.com

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