Digging to stand still

 

Of all the bad news unveiled today by the chancellor this might well be the worst: after two and a half years of austerity, the Office for Budget Responsibility (OBR) is likely to say that the fiscal hole that Mr Osborne promised to eliminate in five years, back in May 2010, is actually bigger now than it was then.

Yes. You read that correctly. The austerity has been real: by the end of this tax year we'll have had £59bn's worth of tax rises and spending controls since April 2010. But the hole in the public finances has expanded to absorb it. Or at least, that is the view of the OBR.

When he wrote his Budget, Mr Osborne thought that three years of austerity would more than halve the structural current deficit, from 4.8% of GDP to just 1.9%.

That was before the recovery faltered. And before the OBR took a much gloomier view of the economy's room for growth in last year's Autumn Statement. By April of this year it had decided that Mr Osborne's measure of borrowing would still be 4% this year, for all his efforts.

That was pretty bad - it meant that a squeeze of more than 4% of GDP had shrunk the hole by less than a quarter of that amount.

But when you apply the OBR's model to the economic data we've had since April, it looks very much as though they will have revised up that totemic measure of borrowing, yet again, for this Autumn Statement.

The Institute for Fiscal Studies, for example, reckons the OBR will put the structural current deficit this year at 4.9% - even under its most optimistic scenario, where Robert Chote and his colleagues consider the loss of growth this year to be temporary.

That is what you might call "psychologically significant". Because it means, even on the most optimistic assumptions, the OBR is going to tell the chancellor that the structural hole he set out to fix is actually larger, now, than when he took office. The disease that the chancellor came in to cure has gotten worse since 2010, despite his best efforts.

Usually, when a medicine doesn't seem to be working, you get a debate between those who say it's the wrong medicine - and others who say it's just not been applied forcefully enough.

What's funny about the current situation - and doubtless galling to Ed Balls and other critics of Mr Osborne - is that we are not really having that debate today. Even though these borrowing estimates are themselves dependent on an OBR assessment of the economy which many economists do not share.

On his own chosen measure, we will probably find out today that the chancellor has literally nothing to show for nearly three years of austerity. The majority of institutions and individuals who supported Mr Osborne in 2010 are likely to say two things in response: he's got the right medicine, and the last thing he should do is apply it more forcefully.

 
Stephanie Flanders, Economics editor Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this
    +10

    Comment number 15.

    Trouble with medicine, is that an overdose can kill the same patient that it intended to help. Only a poor or inexperienced doctor would prescribe the wrong dosage.

    According to Wikipedia Osborne was a: "data entry clerk, typing the details of recently deceased into a NHS computer database". Perhaps Mr Osborne would have done well to stick to his first job or the study of history.

  • rate this
    -7

    Comment number 14.

    Goerge its just not working please admit it ...then move on to what we all want to hear, stop the International Aid Budget and freeze benefits...how much will that save ? and allow you to reinvest in capital spending...

  • rate this
    +14

    Comment number 13.

    The other lesson I would draw from this mess is that George Osborne is just a Loud-mouthed Posh Boy without any qualifications in Economics who is out of his depth at the Treasury. As the economy has got worse he has turned to the displacement activity of Political Strategy, which he also makes a mess of, but can't be measured.

  • rate this
    +2

    Comment number 12.

    Britain, the mushroom people.
    Keep 'em in the dark and feed 'em ****

    It's Darwinism at work though
    ya gets what ya votes for

    Better educated societies like the Scandinavian countries work collectively as a team

    Britain is more like Czarist Russia, we're now an us and them society

  • rate this
    +1

    Comment number 11.

    The juggernaut is about to roll over the bunny frozen in the headlights.

    Steph: UK private debt is said to be ~490% of GDP (by Peston last year). What do you reckon the interest payments on that debt amount to as a % of GDP? 25%? 50%? What effect does that have on demand and growth?

  • rate this
    0

    Comment number 10.

    Everyone can forget the narrow minded politics and the self interest. Fiscal stimulus cannot alter the economic outlook on its own. The fact is that it will require a significant improvement in the world economy before this country sees any great change for the better.
    It looks like the UK, along with the rest of the Eurozone, will be bumping along the bottom for a while yet.

  • rate this
    0

    Comment number 9.

    The interesting question is what has happened or not happened to cause that.
    Is it that the overall world economy is so bad that we are impacted? Is it that our economy has not grown enough? Is it that spending on benefits on the increassed number of umemployed has grown faster than thought? Probably all three - but which has the greater impact; and what should be done to mitigate that? Politics!

  • rate this
    +10

    Comment number 8.

    Osbourne's statement will be aimed at making us believe there is a need for more cuts and "austerity" measures.

    If the Govt reformed overseas aid, stopped butting into other countries conflicts and reformed the taxation system to ensure more corporation tax is collected from avoiders then he'd be some way towards balancing his budget.

    But that's not going to happen is it?

  • rate this
    -2

    Comment number 7.

    Surely he expected to halve the structure deficit by this point and is on schedule? No government can promise growth and with automatic stabilisers in place no chancellor can state what the overall deficit will be with any certainty?

  • rate this
    +5

    Comment number 6.

    I know a man with cancer. It was misdiagnosed by an idiot and he was put on a course of very painful and debilitating chemotherapy that almost killed him. Fortunately for him he was eventually referred to someone who knew what they were talking about who put him on the correct treatment. He is now out of pain and back in productive work.
    Just because treatment hurts, doesn't mean it works.

  • rate this
    +29

    Comment number 5.

    There is no way on this planet that more austerity is going to get us out of this hole. It's just being used as a blunt tool to shrink the state. Political idealism gone mad!

  • rate this
    +4

    Comment number 4.

    Anyone who thought it would take a few years to get the UK economy out of the mess it was in after 30+ years of mismanagement should really stop classifying themselves as "experts".

    It is going to take decades to sort out and, for many, living standards peaked in 2007.

    Personally, I can't wait to see what Labour will do when they get back in in 2015 as, for once, they won't be able to borrow.

  • rate this
    +22

    Comment number 3.

    Austerity is just a lie to force through Tory dogma. Cut all public services, privatise the best bits and sell them to their friends and give tax breaks to the rich. We will see a big bunch of spending promised just before the election, which will lull the less sophisticated voters into a false sense of security. Then the spending won't be delivered. We are being bribed with our own money.

  • rate this
    -2

    Comment number 2.

    The rapidly decreasing tax take is going to give us a few tax "surprises" today methinks

    Britain is now in a spiral of decline which this government of original thinking geniuses will assist by increasing taxes

    Bailing out the banks has been a disaster for the British people

  • rate this
    +29

    Comment number 1.

    "Austerity" is deliberate now. It is a convenient excuse to shrink the state and sell off what's left to big business.

    I don't think even most Tories now believe the "all in this together" myth.

 

Page 16 of 16

 

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