Both the chancellor’s economic forecasts and his budget assumptions have been found mistaken yet again
How many objectionable assertions did George Osborne shovel into his autumn statement? “The economy is healing.” Not according to the chancellor’s own tax-and-spend watchdog. The Office for Budget Responsibility thinks the economy is more fragile than it looked even in spring, with the nation’s annual income set to shrink this year and grow a feeble 1.2% in 2013 (against March’s forecast of 2% and June 2010’s prediction of 2.8%). “We’re on the right track.” Except that the government now admits it will miss one of its two key budget targets: that the debt-to-GDP ratio should be falling by 2015. Not only that, but the longest and sharpest austerity programme imposed on any big rich country since 1945 will now carry on for a full eight years (at least), rather than the one parliament originally envisaged. How about the claim that this was a mini-budget for “strivers”? The well-respected Resolution Foundation calculates that the majority, around 60%, of the households hit by a real-terms cut to benefits and tax credits are in work.
Then there are the assumptions the chancellor has made about the budgetary outlook over the next few years – at best heroic, at worst dodgy. Much more is at stake here than the usual Westminster jockeying. When Mr Osborne moved into Downing Street, he initially lived up to his promise to be a straight-dealer. The red books issued by his Treasury were relatively clear – a joy after the bombast and obfuscation of some of the documents pushed out by Gordon Brown. Yet some of the sums offered up by the Treasury (and approved by an obliging OBR) were far too questionable to bet a country’s finances on.
Take that claim about public debt falling this year, despite the slump – a line that palpably disconcerted Ed Balls. It is technically true. But add back in the Treasury’s raid on the Royal Mail’s pension fund, the Bank of England’s income from the quantitative-easing scheme and the auction of 4G telecoms licences and the fall turns into a rise. Conservatives may argue that this is the kind of conjuring trick pulled by Chancellor Brown – and that is precisely the point. It is worth quoting the assessment of the independent economic consultancy, Fathom: “We do feel uneasy about a system where internalising the Royal Mail pension; selling some ‘air’ (4G licences); and seizing the proceeds of [the Bank’s] gilt purchases, can apparently lead to a material improvement in the public finances.”
Such scepticism is surely what prompted one of the ratings agencies to warn last night that Britain could lose its triple-A status. And there’s more: the Treasury reckons that government departments will spend £4.5bn less than their official budgets this year, and it is now inexplicably banking on departments doing the same thing over each of the next two years. This raises two questions. The first: when is a spending cut not a cut? Apparently when it is termed an underspend. The second: what makes this wishful extension of one-time windfalls any different from the accountancy practised at Enron? We can only hope the Treasury comes up with a good answer when investors and analysts raise that question.
Forget about the tinkering, the tweaking and all the other stuff shoved in to grab the headlines, and Wednesday’s mini-budget will surely be remembered for one thing: Mr Osborne’s admission that he has got his sums wrong – yet again. Both his economic forecasts and his budget assumptions have been found mistaken yet again. This is an extraordinary position for any chancellor to get into – let alone after just two and a half years in office. Much of the responsibility for this does not lie in Downing Street, and Mr Osborne recited a fair list of culprits: the eurozone crisis, Washington’s squabbling over its fiscal cliff, the slowdown in China. But the chancellor must cop some blame, for starting historic cuts amid a global slump. What’s more, he still does not have a meaningful growth strategy – some loose change thrown at infrastructure and a business bank to be launched just before the next election doesn’t count.
Halfway into this parliament and many of the promises made by the coalition parties are proving to be sore disappointments. Vote blue, go green? Betrayed (yet again) by a costly cut in fuel duty and an exhortation to go fracking. All in it together? A token raid on rich people’s pension contributions doesn’t offset the huge sums and misery of a welfare raid. Simplifying the tax code? Mr Osborne’s best ploy was a tax cut for business investment – the sort of complexity Gordon Brown used to indulge in. Rebalancing the economy? Not even lip service in this statement. The fine ideals are long gone; it cannot be long before this coalition’s last claims to economic competence go too.