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

So it's goodbye from me

After 11 years at the BBC, I'm leaving for a new role in the City.

Read full article

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    -10

    Comment number 255.

    Nothing like being a labour reporter Stephenie. Nice to see that the new BBC DG still loves bias from reports so called experts!

  • rate this
    +6

    Comment number 254.

    Looking at the key points of the Statement it's clearly all smoke & mirrors

    The man & the Govt do not have a clue.

    The Govt have failed us (the electorate) and themselves - yet again....

    The trouble is that even the opposition will only offer more of the same - just spun differently.

    Another sad day for the UK...

  • rate this
    +2

    Comment number 253.

    "It is a shame politicians worry over their own futures."

    No it's perfectly rational. Are they made of different stuff to the bloke in the street? I don't think so.

  • rate this
    +2

    Comment number 252.

    237. susuhanan
    Which of these are Osborne's friends?

    All the rest!
    A few ex-members of the Notting Hill pseudo socialists having wormed their way onto the boards of minor financial institutions does not negate the fact that most of our major banks are run by ex public school and Oxbridge chums of the cabinet.

  • rate this
    +5

    Comment number 251.

    Please don't forget though that only 3 weeks ago the BOE agreed to repay the treasury to the tune of £15 billion pa interest on the gilts purchased through QE I am assuming that the underlying debt will now be written off and thus saving us the £375 billion plus £15 billion pa interest for the next 10 years?
    You seem to have left this piece of good economic news from your statement Mr Osborne

  • rate this
    +2

    Comment number 250.

    No pasty tax,no raid on pensions, has he gone soft on us, perhaps he is building up for the big one a tax on fresh air, a difficult one this as it is increasingly more difficult to find. Non tax paying Multinationals seem to remain unharmed.

    Basically George we are in a mess, Ed Balls will have a solution but hey he is why we are where we are now.

    Begining to worry you are out of your depth

  • rate this
    -1

    Comment number 249.

    If you compare growth in the UK from 1997 to 2007 it was simply correlated to amount that Labour spent that we didn't have. Actually slightly underperformed but that's Gordon for you. Unemployment excluding the unecessary public sector hires would have gone up.

    So whilst the East was rising we were basking in a false glow. Labour have riuned a generation but the coalition take the flak!

  • rate this
    +4

    Comment number 248.

    No intention to go after the annual £28billion loss to tax revenue by the evaders or recover the £100billion in unpaid tax. Every intention to cut the income of the poorest 20%.
    G.Osbourne a politician true to the Tory tradition.

  • rate this
    +1

    Comment number 247.

    It is a shame politicians worry over their own futures. Not taxing fuel is petty politicking and daft. As is wasting money on more roads when the latest report shows no increase in driving in a decade. Old fashioned outdated ideas of infrastructure. Now and the future needs universal broadband not extra rail or roads. The amounts put to it are derisory and very site limited.

  • rate this
    +3

    Comment number 246.

    241.Foxin Mad
    Now Ed Balls speaks - the guy is the definition of Clueless. Nothing useful to say whatsoever.
    ==
    The thing you neglect to say is that Tory policy is now almost identical to that initially proposed by NuLab.

    Milder austerity, over a longer period, with infrastructure capital expenditure...

  • rate this
    +2

    Comment number 245.

    236.stereotonic

    Simply not true! See how my son went to University (post 230) and funded himself. to (and through) it.

  • rate this
    +2

    Comment number 244.

    You can read the Conservatives like a bad book, as for Clegg he told his party that there would be no further cuts to welfare. Here is hoping that his party realise that they have a dead duck on their hands and cast him aside.

  • rate this
    +2

    Comment number 243.

    We have an instant gratification culture in this country, which led to people buying cars and holidays on the strength of their houses increasing in value.

    Kids want all the latest gadgets and clothes....they can't afford them so they riot and steal them.

    When I was a child that kind of behaviour was called "behaving like a spoiled brat"

  • rate this
    0

    Comment number 242.

    "The disease ... has gotten worse since 2010" - Far, far more serious than world economic collapse is the fact that BBC journalists have taken to writing American English. Financial Armageddon we can live with.

  • rate this
    0

    Comment number 241.

    Now Ed Balls speaks - the guy is the definition of Clueless. Nothing useful to say whatsoever.

    Him and his chums want to spend money we don't have on something that is not guaranteed. Its like gambling on a horse.

    Milliband, Balls, Harmen and Cooper are truly terrifying individuals. I hope I do not have to live if the economic mess created if they get in and get their way.

  • rate this
    -1

    Comment number 240.

    225. Also I'm always made a little ill by the way the middle class use the poor to justify their handouts. The classic argument that if you make students pay for their tertiary education then the poor won't go has been an age old trick used by the middle classes. Since when did the poor (who by & large are badly served by the ed system at primay & sec level) go to uni in large nos anyway?

  • rate this
    0

    Comment number 239.

    226.Tom Dundee
    "any form of communism/socialism is dangerous ..... Any system which encourages reliance on "the state" is bound to be doomed to failure,"

    More blinkered right wing dogma - you're right about crap being crap whatever the colour, but blue seems to smell a lot worse.
    (And we all know Tory Bliar was no socialist).

  • rate this
    +3

    Comment number 238.

    So the 3p fuel rise has been scrapped.

    Fine, but petrol is still too expensive - the horrendous duty should be cut not frozen.

  • rate this
    +3

    Comment number 237.

    179 - Osborne's friends running banks?
    Tony Blair, Esq - Morgan Stanley, Zurich Financial Services
    Master Euan Blair - Morgan Stanley
    Jonathan Powell - Morgan Stanley
    Peter Mandelson - Lazards
    Ruth Kelly - HSBC
    Charles Clarke - KPMG
    Jacqui Smith - KPMG
    Des Browne - Royal Bank of Scotland
    Which of these are Osborne's friends?

  • rate this
    +1

    Comment number 236.

    @232

    In theory yes, in practice never happens.

    Like you just said yourself 'you are MORE THAN LIKELY'. Sort of like 'you might' but you usually don't. It doesn't happen, it's just more lies because its happened to one of mine. High school and you get help. As soon as your 19, any help is gone

 

Page 4 of 16

 

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.