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

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  • rate this
    -5

    Comment number 275.

    @ GeorgieBoy so do you think it is OK that they lounge in bed whilst you are slaving away on minimum wage? I don't

    Believe it or not the privileged one is standing up for you and all us who contribute to the economy at the expense of those that choose not to. He is also trying to encourage those who want to get out bed and work by encouraging firms to set up here with lower corporation tax.

  • rate this
    +1

    Comment number 274.

    I agree with elcamino, we have a indian IT professional in our office and he has not got a clue. I sometimes wonder how many British IT professionals was turned down to employ this guy. We need to employ British people to get the economy moving... not just the first person who happens to beat the immigration people.

  • rate this
    +4

    Comment number 273.

    It really is about time people woke up and realised we are being exposed to the phenomenon of shock economics. Never let a good crisis go to waste. Goebells said, if you tell a big enough lie, and tell it often enough, people will believe it. Many in the UK have swallowed hook line and sinker the tory lies. This is neoliberalist economics gone mad, all at the behest of a wealthy elite.

  • rate this
    +2

    Comment number 272.

    257.David W

    Ill gotten gain?

  • rate this
    +1

    Comment number 271.

    nearly 5 years since the debt gripped the country and every time I hear about how bad it is I still feel physically ill that none of the politicians since the second world war thought to look at the debt we were building up and think to themselves "this is unsustainable, when are we going to start paying this off?". What do they do in their ivory tower if they arent counting the countries gold?

  • rate this
    +2

    Comment number 270.

    262.Stephen of Woking
    Ed Balls keeps on about Labour's better alternative but never quantifies it. He points to US growth. The US has borrowed $3.39 trillion
    ==
    Balls has no clue.
    It has to be said, however, that I would rather invest the QE money we are hopefully chucking at the banks and invest in Energy, agriculture and infrastructure directly.
    Austerity alone cannot work.

  • rate this
    -1

    Comment number 269.

    Stephanie, I think you're wrong to adopt the Dickensian term "austerity" in such a carefree manner. Is it "austere" merely to live within one's means?

    If I drag a drunken gambler from a casino and force him to sober up, drink coffee and go to his day job, is that being "austere"? Or simply returning to normality?

    "Normalisation" would be a better term. Still a long way to go for the UK.

  • rate this
    +2

    Comment number 268.

    Rather than swallow the Goebells level propaganda this government spit out, why don't you people moaning about Labour's overspending do yourselves a favour and get the facts. Structural deficits under labour governments are historically lower than Tory deficits according to HM Treasury figures. Check for yourself, there's a simple chart at http://www.flickr.com/photos/hmtreasury/5260056945/

  • rate this
    +4

    Comment number 267.

    To those grumbling about the word "gotten".It is old English.
    We say "has fallen"," has given", "has spoken", etc.
    In some parts of Yorkshire we still say "has gotten". It is correct.

  • rate this
    +8

    Comment number 266.

    A posh boy who has never been to work or been without anything, has the cheek to refer to benefit scroungers lying in bed all day whilst the rest of us slave away for the minimum wage.

  • rate this
    +4

    Comment number 265.

    255.CaptainJack

    Nothing like being a labour reporter Stephenie. Nice to see that the new BBC DG still loves bias
    ==
    So which facts has she got wrong?

    If you cant find any we may have to demote you to PrivateJack...

  • rate this
    +7

    Comment number 264.

    261.Moneydude
    "I dislike Nick Clegg. No reason...... I just do lol"


    But there are loads of reasons...... ;-)

  • rate this
    +1

    Comment number 263.

    260. Yep there's a need for radical supply side reforms; unfortunately neither party has any interest/the poltiical will to reform regulation, planning law, taxation, education, labour markets, health. Well you name it!

  • rate this
    +3

    Comment number 262.

    Ed Balls keeps on about Labour's better alternative but never quantifies it. He points to US growth. Since the last UK election the US has borrowed $3.39 trillion to achieve 2.1% growth. If we scale this to the size of the UK economy the UK Chancellor would have to borrow $500 billion. At this point my faith in Labour's alternative plan of borrowing for growth evaporates.

  • rate this
    +2

    Comment number 261.

    I dislike the way the ConDems are dealing with the economy and lack of growth.

    I dislike the way the labour govt helped get us into this mess in the first place.

    I dislike Nick Clegg. No reason...... I just do lol

    Who else can we vote for???

  • rate this
    +3

    Comment number 260.

    Continuous rises in fuel, food, rents. Generations entering adulthood who cant afford houses on delining salaries. Infastructure creaks as successive govts avoided spend & passing buck to next govt 2 deal with. Two-party state (game theory) led to complacent politics & encouraged banking 2 fill the void of weak ecomonic polocies. I have little disposable income left 2 spend! Mad Max!

  • rate this
    +2

    Comment number 259.

    It's boom time in the UK if you're an Indian IT professional. Not so good if your a UK one though.
    Maybe the UK Border Agency should re brand itself?

    " Jobs Sans Frontiers "

  • rate this
    +1

    Comment number 258.

    @246

    Which make Ed Balls and Milliband look even more clueless!

    They would make the same cuts, but complain about them.

    They claim they would spend money they don't have on infrastructure but I am still trying to find the 'real' infrastructure legacy left by 13 years of Labour Government and reckless spending! Public sector vanity projects not included!!

  • rate this
    -1

    Comment number 257.

    "The disease that the chancellor came in to cure has gotten worse since 2010"

    Yuk. We don't say "gotten" in this country. Or are we all Americans now?

  • rate this
    +1

    Comment number 256.

    In summary, this situation confirms that cloud cuckoo land banking begets cloud cuckoo land economics. There's no quick or easy escape, dreamers!

 

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