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 315.

    So reducing GDP has not improved the ratio of debt to GDP ? Duh !

  • rate this
    0

    Comment number 314.

    So after 5 years the govt is still spending more than it's raking in (I thought austerity was when you spent less than you earned !), and this deficit is still about the same level as it was 5 years ago?

    So when is this austerity lark going to start then?

  • rate this
    +2

    Comment number 313.

    George O and other austerity hawks are suffocating the UK economy. They said austerity in a recession would not be contractionary. They said that printing money in a liquidity trap would lead to inflation and high bond yields, when basically the opposite has occurred. They have been proved wrong. Deficit reduction needs growth. Time for the govmt to make use of the low interest rates and invest!

  • rate this
    -1

    Comment number 312.

    5% unemployment is full employment ergo we have 5% work shy. What will get the economy moving is laying off the majority of the public sector,cutting tax/red tape/incentives to invest. The unfortunate truth is that the ever reducing % of economically productive individuals under Labour cannot hope to support those that rely on the income from our tax, be they in the public sector or on the dole.

  • Comment number 311.

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

  • rate this
    +2

    Comment number 310.

    @307 but most people are not long term unemployed by choice, as the condems would like you to think! but if that was the case why would 40 jobs in Tescos attract 1500 applicants? Every day I read of job losses, some job creation but nowhere near on par with the losses. Tackling Tax Avoidanceand using that cash to support job creation, will get people working, thus reducing the Welfare bill.

  • rate this
    -1

    Comment number 309.

    307.angie_HR " To those who are blaming the benefit claimants...." the sad fact is that even with massive immigration, at the peak of the last boom the UK unemployment rate didn't drop below 5%. The reality is the long term unemployed are doing rather well on the tax taken from productive members of society and have no incentive to work.

  • rate this
    +1

    Comment number 308.

    296 "but not in Surrey "

    Chicks and ducks and geese better scurry?

  • rate this
    0

    Comment number 307.

    To those who are blaming the benefit claimants; I hope your job is secure, the company you work for doesn't go bust and if it does you can afford to support yourself without benefits. Because if not you will have to claim benefits also! I’m all for reducing the welfare bill, but putting the cart before the horse does no good; Job creation investment is the way to reduce the welfare bill.

  • rate this
    -1

    Comment number 306.

    "People in 3rd world countries would love to live here!"

    I suspect many see better opportunities where they are away from the stiffling bureaucracy & regulation of Europe with its attendant low growth, high unemployment and crippling private and public debt. If you are wantign to get ahead increasngly you will look otehr than to Europe.

  • rate this
    0

    Comment number 305.

    @298

    Also, the riots are nothing to do with the Tories.

    Its a result 13 years of social degeneration caused by Labour. The something for nothing culture driven by benefits, organised by spoilt youths using their Blackberry phones to organise trouble 'becoza I wanna new telly'.

    No one in Britain can claim they have no opportunity. People in 3rd world countries would love to live here!

  • rate this
    +1

    Comment number 304.

    @298

    Funny I thought it was Brown who sold the Gold and Labour who spent Trillions on Public Sector vanity projects (Shiny schools and Hospitals) during the 'boom' years and left us with no real infrastructure legacy in 13 years of rule.

    Most of the 'great' infrastructure in this country is still down to Victorian entrepreneurs not Labour.

  • rate this
    0

    Comment number 303.

    298.Ton Load

    Oh well you only have a couple more years to wait and labour can come and fix all our problems. Deluded soul

  • rate this
    0

    Comment number 302.

    298 Ton Load

    If you are correct (and that is just your view) then the country will end up being the next Argentina....

    ....maybe Harman would be the UK equivalent of Cristina de Fernandez Kirchner.

    Then the lights really will be switching off across the UK!

  • Comment number 301.

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

  • rate this
    0

    Comment number 300.

    291. "our austerity-crazed Chancellor "

    What austerity? You should pay a little attention to the facts rather than the hyperbole.

  • rate this
    0

    Comment number 299.

    @126 Spindoctor
    You make up your own mind as to which political party my comment referred to. If any.

  • Comment number 298.

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

  • rate this
    +1

    Comment number 297.

    290.CH405 "I notice you ignored my point about emergency treatment" Yes, I may need it one day, of course I am paying for it, GP appointment ? two week wait for a doctor that can barely speak the language. However, able to be seen on the day with a private appointment. I am a director and yes, I regularly sack non-producers - pity the government is incapable of a similar approach.

  • rate this
    -1

    Comment number 296.

    Oh for some graphics & definitions.

    Tampering only with the incrementals means a full remedy involves more hardship than currently.

    Many are suffering, but not in Surrey where trolleys get laden with non-essentials. Elsewhere I still see the desire to live on benefits. I'd like more balance in approaching hardship & when we're "all in this together", really tackle the root causes.

 

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