Economy - 'We are well behind'

 

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Call it candour, call it expectation management, call it what you like. The prime minister's words to the business lobbying organisation the CBI today were striking: "We are well behind where we need to be."

He added: "Getting debt under control is proving harder than anyone envisaged. High levels of public and private debt are proving to be a drag on growth... which in turn makes it more difficult to deal with those debts."

These are the words of a man preparing the way for the publication of economic forecasts by the OBR - the Office for Budget Responsibility - next week.

We all know that growth will be much lower than forecast. We all know that borrowing will be much higher. What we don't know - but the chancellor and the prime minister should by now - are the numbers or the tone of the commentary that will accompany them.

Even allowing for the increased cost of welfare as unemployment goes up, the so-called automatic stabilisers, and meeting borrowing targets in five years not four, the OBR could declare that the chancellor is well off course. Unlike any previous chancellor, George Osborne could not re-write that independent warning.

So he and his boss have been preparing for the worst...

UPDATE 6pm: The chancellor has received the OBR economic forecasts which will be unveiled next week on the same day as his Autumn Statement.

I'm told that the OBR's report will give a percentage probability that the government will meet its deficit targets - in the jargon, its "medium-term fiscal mandate" which, to remind you, is "to balance the cyclically-adjusted current budget by the end of a rolling, five year period", and a supplementary target "to see public sector net debt falling in 2015-16".

In March, after the Budget, the OBR concluded that:

• our central forecast suggests that the government has a greater than 50% probability of meeting both these targets under current policy

And

• there is a roughly 70% chance of the government meeting the mandate under current policies.

This was prefaced with the crucial sentence: "If our forecasts are as accurate as past Budget and Pre-Budget Report forecasts." They are, of course, unlikely to be.

Economists tell me that the key to that vital probability number is their measure of so-called "spare capacity in the economy" - in other words, how much of the drop in output is a permanent impact of the banking crisis and how much is temporary. If the OBR decides there is less spare capacity than they originally thought, there would be less scope for growth to help erode the deficit, which could mean that the government would miss its deficit targets.

The political question then would be - does George Osborne simply accept that it will take longer to cut the deficit beyond the next election, or announce more spending cuts and more tax rises?

UPDATE 22 November: Will he or won't he miss his deficit target? There's been much speculation about what the Office for Budget Responsibility will say next week. My colleague Stephanie Flanders explains on her blog how the numbers might be calculated and the targets met but Labour have dug out a quote from the Prime Minister which gives him much less wiggle room:

"In five years' time, we will have balanced the books.

"The sharp tax rises and huge interest rates you feared, the uncertainty you felt - these are things you no longer need to worry about.

"With our Budget in June and the Comprehensive Spending Review last week, we took Britain out of the danger zone."

David Cameron, speech to CBI conference, 25 October 2010,

 
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  • rate this
    -4

    Comment number 13.

    It's time that that Dave and George's plan got the response it deserves. A twentyone gun Nelson Muntz special. All together now - point finger and
    "Ha - Ha!"

  • rate this
    +1

    Comment number 12.

    6# Nick

    Only if you assume there was a course of action that would have resulted in an improved economic situation - is this what you think and if so what was that course of action and what evidence can you bring to bear to support this assertion?

    If not then you are just trolling.....

  • rate this
    +2

    Comment number 11.

    Well 5. Eddy from Waring, I think they call that "increasing productivity", getting fewer people to do more work, instead of sharing the work with more people. Of course my Grandad called it "Flogging a dead 'Orse" :)

  • rate this
    -1

    Comment number 10.

    Of course we are well behind, but the PM shouldn't be too harsh on himself and the chancellor about it. The plan was a crock when they devised it and had no chance of success given the base premise was not able to be repeated from the models for it (Sweden and Canada - who both retrenched when their major trade partners were booming (artificially as it turned out)). Still pay peanuts...

  • rate this
    +1

    Comment number 9.

    High youth unemployment is because we have a skill vacuum. We need to rethink apprentice scheme.

    Industry abuses young apprentices. Lecturers are lack of industrial experience.

    Yet, there are lecturer-inventors affected by bad politics in the Universities, and were forced out to run their own small businesses. They are the only ones who can build the bridges for our young people.

  • rate this
    -2

    Comment number 8.

    The strategy (plan A) is failing. If one country opts for austerity (just as if one country only had introduced tariffs in 30s) it would be able to repair its balance sheet over a few years. If most countries we trade with are opting for austerity (encouraged to do so by us) where will demand come from? Also Eurozone knows it has problem does not need UK lecture.

  • rate this
    0

    Comment number 7.

    4 Saga. - There is nothing in the report to support such a comment - I must suppose you have just made it up?

    Or would you like to justify how you go from Nicks comments to yours?

  • rate this
    -4

    Comment number 6.

    #2. Dave and George have been pursuing Plan A for 18 months now, and it has made the economic situation worse - that clearly IS Dave's fault.

  • rate this
    +1

    Comment number 5.

    So Dave's much-vaunted "prize" he brought back from the EU meeting, is that in return for not fouling up the EU's attempts to sort the euro, the UK may be allowed to "look at the implementation of the WTD", or opt out. How, pray, is allowing employers to compel their existing employees to work whatever hours the former like going to create more jobs? Won't they just get the work done with fewer?

  • rate this
    -4

    Comment number 4.

    I guess Cameron thought that coming through the worst global economic and financial crisis in almost a century was going to be on a par, as regards degree of difficulty, with running the Eton tuck shop.

    Good that he's wising up. Hats off to him.

  • rate this
    +1

    Comment number 3.

  • rate this
    +6

    Comment number 2.

    Still, he could always adopt Ed Milliband's big idea and borrow more -

    ohh, I forgot, that's why we are in this mess.

    However, I'm sure the socialists on here will still think it's all Dave's fault that despite having no money left (Labour's words) he hasn't been able to painlessly fix 12 years of debt binging by just waving his magic wand and by taxing someone else.

  • rate this
    0

    Comment number 1.

    Try to get ahead of the curve, they say...

 

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