Despite positive growth forecasts, the UK’s public finances look to be deteriorating ahead of chancellor George Osborne’s Autumn Statement. Welcome to the gloomy new normal
There should be uncontained excitement at HM Treasury right now. The UK economy is set to grow at the fastest rate in the G7. And unemployment is at its lowest level since 2008. All good news for a chancellor preparing his pre-election Autumn Statement.
Instead, there’s a distinct air of seasonal melancholia, with much talk of secular stagnation and dampening down of expectations.
The downbeat mood was summed up recently by IMF boss Christine Lagarde who has warned we face ‘a new mediocre’ – a sort of ‘meh whatever’ shrug about the state of global growth.
This autumnal chill is partly down to headwinds from the EU – particularly with Germany on the brink of recession – and from China’s rapid slowdown. Not to mention the geopolitical risks that have spooked the financial markets.
But the chancellor also faces some seasonal disorders of his own.
Top of the list is the deteriorating state of Britain’s public finances. With public borrowing up by £5.4bn on this time last year, the Treasury’s deficit reduction targets now look distinctly unrealistic.
The underlying shortfall in tax receipts is due in part to very weak pay growth – reflecting the ‘not worth it’ jobs culture unwittingly alluded to by welfare minister Lord Freud.
All of which points to a serious revenue problem for the Exchequer – and some migraine-inducing challenges for government bean-counters.
CIPFA’s 2015 manifesto – previewed in this issue – makes a plea for far greater honesty and realism about the fiscal position faced by the next government.
How, for example, does the Treasury chief secretary’s warning about stronger spending controls square with the burgeoning demands on vital services coming down the tracks?
How, in particular, should any future administration respond to the pitch by NHS England chief executive Simon Stevens – in his five-year ‘forward view’ – for an extra £8bn in the next parliament?
And if this special pleading for the NHS is successful, what does it mean for other less loved and protected areas of spend?
Answers will be required by the time of the 2015 spending review, whoever is in charge of the purse strings.
As the Institute for Government argues, with 50% of cuts still to come, it is this event – not the Autumn Statement – that will set the mood for our increasingly beleaguered public services.
Welcome to the gloomy new normal.
This opinion piece was first published in the November edition of Public Finance magazine
