George Osborne has a fight on his hands to bring down the structural deficit

The Chancellor has been rewarded for pounding the pavements of St James’s Park and sticking to the 5:2 dieting fad with a newly svelte figure.

The economy, on the other hand, appears to be running faster to stand still, according to his fiscal watchdog.

George Osborne may have boasted yesterday of “securing Britain’s economic future” but he skirted over a structural deficit that stubbornly refuses to narrow despite the Office for Budget Responsibility’s second upgrade to growth prospects in four months.

Better growth is smartening up the public finances, but the part of the deficit impervious to the ups and downs on the economy — the gap Osborne has to close with tax rises or spending cuts — is virtually unmoved since December’s Autumn Statement.

Osborne remains on course to balance the structural budget a year early in 2017-18 but it isn’t falling any more quickly, and his surplus will in fact be smaller in that year as well as in 2018-19. The structural deficit of 2.2% for the current financial year is actually worse than the 1.7% estimated a year ago so there’s less room for growth to repair the public finances.

The OBR also burst a few other bubbles yesterday. Osborne hailed the doubling in the annual investment allowance to £500,000 — handily glossing over the fact that he himself chopped it to £25,000 four years ago. But what impact will that have on overall investment? The OBR thinks precisely zero.

In the small print of the watchdog’s documents on the economic effects of policy measures, it points out that only 9% of investment spending falls within the expanded threshold, where firms would have the most incentive to bring forward spending. It reckons just under £1 billion in business investment would be brought forward into 2014 and 2015, a “small change relative to the size of the economy”.

The OBR adds: “As this is a temporary measure, it has no effect on the long-run cost of capital, and so the level of investment by the end of the forecast is unchanged.”

So this isn’t really an investment budget at all, more a short-term fillip. Other rebalancing measures — such as a doubling of export finance and business rate relief for enterprise zones — didn’t even merit a mention. Another worry for the Chancellor is the OBR’s assessment of the UK’s potential ability to grow over the next few years. There were hints yesterday of a productivity revival in the jobs figures, where output grew faster than hours worked in the quarter to January, but the OBR labelled Britain’s productivity performance “disappointing”.

It believes the loss of productivity over the recession will not return even as the economy recovers and the financial system returns to full health. Because the mystery has baffled economists so much, the watchdog is unsure whether productivity growth will ever return to historical trends.

Overall GDP will return to 2008 levels later this year but, due to a rising population, output per head remains 5.5% below its pre-recession peak, and is unlikely to recover until 2017. This decade-long stagnation is unprecedented in peacetime: it underlines the hard yards ahead for the economy — and for Osborne.