Osborne's £23bn from the back of the sofa

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Media captionRobert Peston gives his analysis on the chancellor's Spending Review

So how has George Osborne pulled off the magical trick of maintaining spending on the police, imposing smaller than anticipated departmental spending cuts in general, and performing an expensive u-turn on tax-credit reductions, while remaining seemingly on course to turn this year's £74bn deficit into a £10bn surplus in 2020.

Well, it is because the government's forecaster, the Office for Budget Responsibility, has increased its prognosis of how much the Treasury will raise from existing taxes (not new ones) and reduced what it thinks the chancellor will shell out in interest on its massive debts.

In total the OBR thinks the national debt, the aggregate of the annual deficits, will be £23bn lower over the four years to 2020, and just because it is more optimistic about tax revenues and assorted costs.

Or to put it another way, George Osborne is today £23bn better off than he thought in July, and without doing anything at all.


So what is the chancellor doing with this very useful £23bn that the OBR has found at the back of the sofa?

Well he is using £19bn of it to cover the £4.4bn annual cost of not slashing tax credits, and making about £8bn a year less than expected in departmental savings.

So on paper it looks as though the chancellor is actually being a bit more prudent than he was in July, even though some would say he is expensively moving his party nearer to the centre-ground of British politics - which he thinks has been vacated by Jeremy Corbyn's Labour.

To labour the point, George Osborne is not deploying quite all of his windfall to buy off his critics by taking the teeth out of austerity.

But that does not mean there is no risk for him.


The OBR's fiscal optimism could well be misplaced - especially since only last week we saw government borrowing figures hideously worse than expected.

But presumably, if tax revenues turn out lower and interest payments higher than the chancellor is now banking on, he can attempt to blame and kick the forecasting agency, the OBR, which he created.

And he'll hope, presumably, that voters won't see double standards in his years of bashing his Labour predecessors for spending tax revenues that never looked sustainable.

George Osborne has not quite morphed into his former opposite number, Ed Balls. But he is, in a more Ballsian way, counting on economic recovery to mend his overstretched finances.

UPDATE 20:21

I have had a quick word with Robert Chote of the OBR, and he says that even if he had seen October's lamentable borrowing figures he would not have changed his deficit projections.

His expectation is that revenues will rise for the government because of measures already taken, but which have not yet led to a higher tax yield.

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