Beyond the Treasury spin, the chancellor delivered an incoherent Autumn Statement that blamed everyone but himself for the mess the public finances are in
George Osborne has delivered his Autumn Statement, to general critical declaim. There are three things to immediately say about it.
First, a rather geeky gripe. It was a mini-Budget, indeed a mini-Spending Review, rather than an Autumn Statement. In this respect George Osborne has gone one up on his predecessor, Alistair Darling, who has famously said he delivered six Budgets in his 3 years as chancellor (in his book ‘Back from the Brink’).
Let me explain. When Gordon Brown reformed the way government makes it’s big spending decisions back in 1997/98, he created a three-tier system.
At the top sat Spending Reviews, in July (every other year). The big change here was that these were going to be multi-year fixed spending plans for all government departments. Originally they were going to be three year plans (when the first one was published in July 1998) but then in practice they became '3 year plans revised every 2 years' (2000; 2002; 2004; and 2007). This was meant to replace the dreaded 'annularity' of a yearly spending round.
Next came the actual Budgets, every March, that would implement the Spending Review plans, as well as making changes to taxation. And in October each year, before every Budget, there would be a Pre-Budget Report (PBR or Autumn Statement) that set out the state of the nation's economy and public finances. In ordinary Budget years this would not set out any changes to public spending (they had been decided in the preceding SR) but might outline broad tax changes (usually for consultation before implementation in the following Budget).
In the year before a Spending Review was due (eg this year) the PBR/Autumn Statement would also set out the macro-public spending envelope for the SR – the total amount the government was going to spend for the next 2/3 years.
Still with me? So, if George Osborne was sticking to this system what we could have expected in the Autumn Statement was the parameters for next year’s Spending Review – how much would it commit and over what period (2, 3 or 4 years) – and not any departmental detail.
Instead what we’ve had is an ill-disciplined mixture of spending plans over 2, 3 and 5 years, with some detail about departmental spending and the rest having to wait for Spending Review 2013. It is frankly a procedural mess. Does it matter? Yes, because what the chancellor claims to want to do is reassure 'the markets' and others that we have a clear deficit reduction plan. Today’s announcements were as clear as proverbial mud.
The second major thing wrong with the Autumn Statement was the usual political spin embedded in Mr Osborne’s 'it weren’t me guv' plea.
According to the chancellor, supposedly aided and abetted by the Office for Budget Responsibility, the poorer than expected economic results, and knock-on poorer than expected public finances, are all down to those rotten continentals over in the eurozone.
Let’s leave aside for a moment the fact that Messrs Cameron, Osborne and Clegg have been urging the eurozone countries to adopt more and more frantic austerity measures, with all the consequences for ‘death spiral’ economics we’ve seen in Greece and elsewhere. What Osborne carefully sought to side-step were the two factors for which he is much more obviously responsible: cuts and confidence.
Confidence first: for at least the first year they were in government the coalition ran around rather like Corporal Jones in Dad’s Army shouting 'Greece – Don’t Panic.' By which they meant that we – the UK – were on the verge of a Greek-style crisis. This was always nonsense but it was politically expedient.
The unintended consequence was to undermine business and household confidence and help to trigger the double-dip recession. Meanwhile, the government has so far taken just under £60bn out of public spending. This has both an objective and subjective economic effect.
Objectively it reduced demand. Originally, HM Treasury and the OBR worked on the accepted ‘leverage’ figure of 0.5 – i.e. for every £1 cut from public spending it reduced demand by 50p. But recent IMF analysis has shown that this ratio was, in current circumstances, more likely to be in excess of 1:1, perhaps as high as 1:1.7. So £60bn of cuts equals in excess of £60bn of reduced demand, or perhaps as high as over £100bn.
Subjectively, the cuts have been 'front-loaded' onto local government especially. This has meant that in virtually every locality there has been wall-to-wall media coverage of services shutting down or under threat, and of local government workers losing their jobs or having to accept part-time working and reduced wages. This was essentially 'austerity agitprop', almost guaranteed to undermine confidence in the economy.
Nor is it very surprising that the OBR should seek to blame someone else (eg the eurozone) for the fact that they’ve gotten just about every prediction about the economy and public finances substantially wrong so far – they’ve been working on mostly the same assumptions, with the same model, as HMT.
The third and final point I want to make is about the 'dog that didn’t bark' in Osborne’s Autumn Statement. What could, and should Britain look like After Austerity?
According to Osborne, by about 2015 we will be back to substantial growth; indeed with some growth rates higher than before the global financial crisis. We will have the deficit back down to under the 3% of GDP we had for 5-6 years before the crisis - and which, at the time, Osborne thought was fine.
So once we’re back to growth and the deficit dragon has been tamed, what then? Well, according to Osborne it appears, nothing. By 2017-18 he would have public spending down to below the magical 40% of GDP (39.5% to be precise) and it seems he’d be quite happy to keep it there or keep on pushing it down further.
There’s no talk of rebuilding the public realm – 'sharing the proceeds of growth' as the chancellor used to say. On the contrary Osborne and his Conservative colleagues are quietly content that they will have 'rolled back the frontiers of the state' far further than Margaret Thatcher ever managed.
That is a legitimate, if misguided, political ambition. What is not legitimate is to embark on such a radical change without a popular mandate or even a public statement of that’s what you are about.
Nor was there any vision from Osborne of what the private sector would look like – about where the growth, innovation and famed ‘re-balancing’ was going to come from. What would be the engines for growth and prosperity?
On all of this, George the Deficit Dragon Slayer said next to nothing. Our chancellor obviously isn’t one for multi-tasking.
This post first appeared on Colin Talbot's blog Whitehall Watch
