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 Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this
    +1

    Comment number 175.

    I suggest that DC and Co need a dose of bitter medicine to cure our economic woes

    The cold, homeless, peniless, jobless, well qualified young folk with huge student loans, should set up shop, camping outside DC,s house for Christmas week & to see if they get invited in for a winter bracer.

    A version of Stock Exchange camp, but at the leaders front door instead. That should attract the press

  • rate this
    -6

    Comment number 174.

    I agree Brown and Darling were getting the country out of the recession and doing it by building jobs and work George has not got a chance of bringing this country out of recession we have worse to come, we need immediate change for the poor now not to take affect in 3 years now as when george takes from the poor he does it immediately.theres no jobs because george does not know how to build any

  • Comment number 173.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +1

    Comment number 172.

    Try getting the banks to make proper provisions against the bad loans and foreclose where necessary. Recapitalise the banks after nationalisation if necessary (and I am a conservative voter). Increase interest rates to sensible levels - you would see a lot more spending from those, particularly the old, with moderate means but savings producing nothing. It might be better than what we have.

  • rate this
    +1

    Comment number 171.

    167 Topcat

    Could we have that in plain English please?

  • Comment number 170.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +17

    Comment number 169.

    Cut benefits paid to the rich.

    The overpaid fat-cats living off the public purse, the landlords receiving record amounts of housing benefit, the council chiefs who cut services and increase their pay, the civil servants receiving annual increments while lower paid workers are made redundant.

    The country has to live within its means. These luxuries can no longer be afforded.

  • rate this
    -2

    Comment number 168.

    Still back to the same issue: the failure to understand the nature of the crisis.
    The old debate of cuts v fiscal stimulus is a false choice; just as it arguably was in the 1930's.
    Once you understand that a crisis of overproduction requires a recession to restore profitability you begin to realise how crazy it is to have a system based upon profit.

  • rate this
    -1

    Comment number 167.

    157 ww 1 the end of feudalism and america cecedes from the rest of the world and only to rejoin it to conquer it,once again the panto time returns
    bad bois cam and ossy dupe cleggy the lid denim to signing up to more poor austerity prog.
    NO remorsi the time to dance like the egyptians and do a soft shoe shuffle called an election

  • rate this
    +1

    Comment number 166.

    Humm so the cuts aren't working - "Let's cut more" says Osborne. He obviously has a mug that says "failed?" "fail again - fail better". May the mighty creator in her wisdom send us an election before everything is gone.

  • rate this
    -1

    Comment number 165.

    the ‘standing still’ headline is materially incorrect.

    total deficit has reduced circa 15%+ since Labour, albeit less recently.

    without cuts debts would be larger.

    GDP is not a comparison as it includes debt spending so will reduce with cuts.

    As a personal friend of labour top brass SF is not unbiased.

  • rate this
    0

    Comment number 164.

    156 I am not a tory and it's a pretty fair statement given the majority of what gets posted.

    Some of the garbage the right whingers come up with is just as bizarre as the left whingers. A quick quiz on the ballot before a vote is counted perhaps, e.g. how much is spent by HMG annually? Though the results may be bizarre first time: Anywhere Central, A wins by 10 votes to 9 , 75000 void ballots

  • rate this
    +1

    Comment number 163.

    @142

    So you want the fat cats to continue at the top then?

    I say to you that we have a better chance if we had people in charge who are ordinary and on our level, with the understanding of what it's like in the 'real world', instead of having been spoon fed all theire lives and had someone else doing for them all the time, then they may understand better and not make stupid choices for us

  • rate this
    +1

    Comment number 162.

    Well, YOU may not be having that conversation, but if you listen carefully the rest of the country certainly is! What if Roosevelt had tried these policies in the Depression? Like Japan before us we are learning the hard way that you can't cut your way out of a recession.That way like Stagflation and nil growth. Cameron's inept bunch of posh schoolboys should step aside, their policies don't work.

  • rate this
    +2

    Comment number 161.

    Digging to stand still
    We should actually be talking about bottoms.

    Until/unless the consequences of banking crisis bottom out inc Greece etc then we do not have any SOLID foundation starting point for upward prosperity.

    UK/EU banks have only written down around 30% of bad debts much is hidden, lurking in shadows waiting to POUNCE & it will, we are fast RUNNING out of financial AIRBAGS.

  • rate this
    -1

    Comment number 160.

    Deficit under Ken Clarke in 1997 - 47% GDP

    Deficit under Darling before the banks destroyed the economy & had to be bailed out - 35%

    Net UK external debt NOW - £17bn

    Osborne as well as being abjectly unqualified & inept is deliberately lying to cover up an ideological onslaught on the 90%.

    Abetted by the greedy dim buffoons who post here & those who fund his appalling political aspirations

  • rate this
    0

    Comment number 159.

    Where and how is the demand going to be created in the economy to boost economic growth in the U.K?
    How is Osborne going to reconcile that the so called is not a national economy that operates as one at the same rate or speed the Scottish economy is a case in point .
    When are we going to see a recognition that Africa as a a export market is important as the U.S or Europe ?

  • Comment number 158.

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

  • rate this
    -2

    Comment number 157.

    the headline for this on the BBC news Homepage is 'Flanders Digging to Stand Still' which to me implies a WW2 archeological dig to stop work for a period of time perhaps in honour of the dead. I was very surprised to find this article. Who determines the headlines for this website? Can they read? Do they understand the principle of 'Context'

  • rate this
    -3

    Comment number 156.

    142. AndyC555
    Have you read the average BBC HYS? An argument for taking away most people's vote, never mind putting them in charge.

    That pretty nicely sums up the view of the average tory.
    Let's go back to the good old days when only the landed gentry were allowed to vote, no more of this nonsense of letting trades people, servants (and even women for God's sake) partake in elections.

 

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