Despite some crowd-pleasing announcements, the chancellor's Autumn Statement could only promise more austerity medicine. The borrowing figures show the reason why
If anyone was wondering why the government spin machine for this autumn statement was in overdrive, the fiscal numbers released today tell us why. No amount of dominating the airways for days with announcements of spending on everything from the NHS to flood defences, buses to garden cities, reviews of business rates to science centres in Manchester, and, on the day , producing rabbits from his hat on air passenger duty and stamp duty, can hide the fact that the indicator George Osborne asked to be judged upon is not doing too well.
The borrowing figures are indeed troublesome. The deficit forecasts for this year and next are higher than those forecast only 6 months ago at Budget time. Yes, the chancellor has taken comfort from the OBR being more optimistic on the deficit a few more years out, but such longer term forecasts must be taken with a big pinch of salt. The lesson the public might take from all this is that we have all had to put up with deep austerity but are getting nowhere fast. The pain remains but the gain is a bit hard to spot.
It’s unfair in some ways. If the focus had been on getting growth going, with healthy employment levels but inflation still subdued, then he could have called out success. True, growth for this year of 3% followed by a drop down to the lower mid 2 per cents for the next few years is unspectacular after such a deep recession, but it stands well relative to what is going on in most of the Eurozone at present.
The trouble is that for the public finances – and for the living standards of many people – it has been the ‘wrong’ sort of recovery, due partly to the policy choices of this government. So growth, while healthy now, has taken a long time to get going so that output is still way below what it would have been if, as many economists argue, we had not blown it off course in 2010 with excessive austerity too early. And the growth in employment we have is dominated by low pay jobs that do not bring in the tax receipts we all want (especially when the personal allowance threshold has been raised). Inflation being low is great in many ways but means that receipts are lower too.
The OBR estimates that the structural deficit is still large – so the deficit won't all go away just through growth - and that implies more cuts. While such estimates must be regarded as pretty ropey – economists can only make intelligent guesses at what any output gap is – it means that Osborne is now forced through his own logic to tell the great British public that because his first dose of medicine did not work that well they must take more of the nasty stuff.
The OBR says that the chancellor’s plans on public spending imply that it will fall to 35.2% of GDP by 2019-20, the lowest level in 80 years and one which many commentators feel is simply not deliverable or sustainable. No doubt he will try to make a virtue of that vis-a-vis the Labour party. Whether the public will wear that will be one of the key factors as we move towards the General Election.
