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
    0

    Comment number 35.

    George Osborne studied modern history at university

    So he's not exactly a numbers guy


    Our next chancellor is going to be far more qualified
    He's called Tam the Milkman and has a LOT of experience at counting milk money

  • rate this
    -9

    Comment number 34.

    "nothing to show for three years of austerity", just about sums up this appalling excuse for a Chancellor, and a government led by Cameron
    that thinks 'gay marriage' is a priority, and windmills are the solution to our energy problems....
    Alas they will wreak more havoc in our beloved country before we get the opportunity to sling them out of office, even if replaced by the other idiots,LABOUR

  • rate this
    +4

    Comment number 33.

    This government failed to understand the affect of ill thought out austerity measures. Redundant public sector workers pushed up the public sector pay bill taking their pensions early and redundancy payments.They have been unwilling to spend on the High Street because they do not know what the future holds. This has compounded an already difficult retail situation and we have had many closures.

  • rate this
    +1

    Comment number 32.

    Oh come off it. Look at the rest of Europe. Many Western countries (without natural resources) are similarly affected.
    Osbourne is to some extent hoist by his own petard. All this talk of austerity, yet apart from construction projects , very little has actually been cut. Brent council are spending money like water on reshuffles and payouts at the top - try investigating that one!

  • rate this
    +3

    Comment number 31.

    Osborne,like Brown blames the world economy for the current mess. Like Brown he is largely right, most of it was caused by the credit bubble created by the de-regulated financial sector.All UK Parties supported this.
    Also like Brown he is partially wrong cutting deep and fast in a bust is as crass as expanding in the boom.

    The slogan clearing up Labour's mess should add and creating our own

  • rate this
    +8

    Comment number 30.

    Imagining that banking and finance is an industry is the fundamental mistake. You cannot mine for money while making nothing useful yourself

    Proper hard work, not spivving up the property prices then trousering unearned profit, is the proper way forward

    There were too many thieves let loose on the UK under Thatcher and we are now having to pick up the pieces if we can

  • rate this
    +5

    Comment number 29.

    The good news is that our predicament is now beginning to be recognised for what it is: a slump worse than the Thirties.

    This reality has been obscured by banks who don't want to confess their off-balance sheet liabilities, politicians who have consistently refused to see the truth and a public which still believes in the magic money tree.

    It is now time for everyone to get real.

  • rate this
    +7

    Comment number 28.

    This "debt" that is apparently preventing anyone in this country from investing or spending is a bit of an illusion. Who do people think are the beneficiaries of all this debt? It's not some mysterious country we've never heard of. It is the rich in our own country. They have the money and they are just sitting on it, because Osborne has set up an economy where there is nothing to gain from risk.

  • rate this
    +3

    Comment number 27.

    The way I look at this is, if we had an old car that needed repairing, would cutting back spending on repairs make the old car work better? or would a spend of £500 give the old girl a new lease of life?

    Cutting back only works when the economy is functioning. Our economy is on life-support at the moment.

    Close tax loopholes for the wealthy! Scrap Trident!.

  • rate this
    +5

    Comment number 26.

    This "solution" to our problems didn't work in the eighteen and nineteenth centuries - why should it work now?
    What was the solution in the twentieth century George? - Sorry, like your boss, you don't do history - it teaches you lessons you don't want to hear.

  • rate this
    +3

    Comment number 25.

    The Chancellor would probably have been best advised to not let his collegues spend vast sums of money on entirely unnecessary politically ideologically inspired changes that for whatever their worth have cost billions and delivered , well, nothing but overspends as usual.

  • Comment number 24.

    All this user's posts have been removed.Why?

  • rate this
    +9

    Comment number 23.

    Blood letting was seen as a cure but we moved on from that, isn't it time Osborne did the same. This government has made things worse. Alistair Darling said it would take two parliaments of slow reductions allowing growth to get the deficit down. Osborne will extend that to three parliaments or more, because of his stupidity and this governments, Tory & LibDem, inability to admit they were wrong.

  • rate this
    +1

    Comment number 22.

    meh, our country has been on the way down a long time, not really anyones fault, just one of those things, between benefit cheats, tax dodgers, and everyone else liveing beyond their means theres not a whole lot the GOVT can be expected to do about it

  • rate this
    +3

    Comment number 21.

    How come it's possible to create an independent office of budget repsonsibility (which seems to be not that independent) but not an independent press complaints regulator?

  • rate this
    +9

    Comment number 20.

    I think we knew where this Government was heading when they closed the Forensic Science Service. This was an internationally renowned organisation and there was a huge outcry from around the globe when this was announced. My point is thus quite straightforward; we have a clueless (sic) administration who through stupidity and arrogance are going to make things a lot worse whatever they do..

  • rate this
    +4

    Comment number 19.

    Dear Staphanie and all the politician from the UK and the West World
    Until all admit that the current economic system as reach the end of is useful life and a new system is created the current crises will go on and on we do not need a stick plaster or minor surgery we need MAJOR surgery starting with the rate agency and ect........................

  • rate this
    +2

    Comment number 18.

    Main problem, was/is ConDems retreating austerity plans which had NO COUNTER OFFENSIVE & which Osborne is now forced to implement & is mediocre, possibly £5billion from new cuts.

    On top of this UK is at huge disadvantage due to our history, China has never forgotten what we did & any Chinese investment comes with dangers, more likely UK = Chinese province than USA state, hence EU is IMPORTANT

  • rate this
    +9

    Comment number 17.

    Its not rocket science.

    On Avg we pay 57% in tax, NI, VAT (HMRC figures).
    Most cuts have been jobs so nets savings only 43%
    But then they have to redundancy, benefits etc so savings?
    Loss of disposable income in economy = more job and tax losses.
    Net savings probably negative eg more borrowing.

  • rate this
    0

    Comment number 16.

    Is the chancellor playing the part of Ebenezer Scrooge, realise is way and hand out more benefits to the poor and needy?

 

Page 15 of 16

 

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