Running a budget surplus in five years was one of the eye-catching targets announced by George Osborne in today's autumn statement. But there are better ways to use any spare cash
What a difference a few months makes. For the first time in a long time, the Chancellor was able to present some good news about growth and borrowing. The faster recovery has meant that borrowing is coming down faster than expected.
For once, the government is still on track to meet its fiscal mandate to eliminate the structural deficit within a rolling five year period, without pencilling billions of extra cuts in. Now, 18 months before an election, the Chancellor’s sights are shifting away from short-term fire-fighting to the longer term challenge for the UK economy.
As he put it in his speech, productivity is simply too low. A recovery is all good and well, but the OBR see little change in the underlying health of the economy. Fixing our productivity problem will be vital to dealing with the long-term challenges of an ageing population. The OBR numbers show that if we can boost theeconomy’s productivity, debt wouldn’t start rising until around two decades later.
It’s a fiscal headache that makes recent woes fade into insignificance. So the Chancellor’s focus on dealing with the long-term challenge is welcome. Measures to increase busines investment through lowering corporation tax, helping young people into jobs and training, and expanding university places are all positive steps.
But if higher productivity is what is going to save us, we need to think carefully about whether austerity is the right way to get there. The latest OBR figures show that by 2017-18, government will be running a structural surplus of £13 billion, slightly less than it was predicting back in March. But by 2018-19, this structural surplus will have more than doubled, to around £32 billion – according to the OBR largely as a result of total spending in 2018-19 being kept flat.
It’s worth stopping to think about what this means. A zero structural surplus would mean that the government balances its books over the course of an economic cycle. A structural surplus means that it goes even further than this – allowing it to pay down national debt – and in this case, by quite a considerable amount.
Using the full amount to pay down debt is one option. But given the huge benefits to be gained by fixing the UK’s productivity problem, the chancellor should consider whether targeting such a large surplus in 2018-19 is the best choice.
Even with just the £13 billion surplus being targeted in 2017-18, we could treble science research funding, treble adults skills funding or introduce universal childcare enabling parents to go out to work – and still have money left over.
Today’s speech marked the beginning of a new focus on the long-term. But solving the long-term challenge requires a new mind-set. Austerity alone won’t solve our problems.
Nida Broughton is senior economist at the Social Market Foundation
