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Osborne to drop debt target to avoid ‘nightmare’ cuts

12 September 2012

8:58 AM

12 September 2012

8:58 AM

George Osborne is in for a really rocky autumn to follow the dismal summer he’s just survived as chancellor. The Times and the Guardian are both reporting this morning that the Chancellor is set to drop his key fiscal target of having public sector net debt as a proportion of GDP falling by 2015 as a result of higher government borrowing and lower tax receipts.

Osborne has decided that the political fallout from abandoning this target, which he has long touted as a sign of the success of his policies, would be smaller than the ‘nightmare’ of further cuts, particularly the £10 billion cuts to the welfare budget.  Jonathan wrote in July about the approach of a ‘hideous choice’ for the Chancellor if growth downgrades continue. The nightmare isn’t just that the Liberal Democrats have said they will block any such moves, but that the Prime Minister himself is also opposing attempts to find savings by means-testing the winter fuel payment. Instead, The Times reports that David Cameron has agreed that the target could be dropped, and that the Liberal Democrats will support the decision, too. Osborne will continue to make the case for eliminating the structural deficit.

Even if there is consensus in the coalition on this, though, it will seriously damage the Chancellor, and will be a stick that Labour uses to beat him with whenever he makes the case for his fiscal policy. It will also jeopardise the credit rating that he currently holds so dear. The word from the Treasury is that no firm decision will be reached until the Office for Budget Responsibility publishes its next set of figures which will show whether the extra borrowing will mean the target will not be met. There might be worse nightmares that Osborne is keen to avoid, but this route will still feel like a very bad dream.

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  • Mike Brighton

    Further evidence that the Tories are just playing at cuts and doing the bare minimum to satisfy the markets (that won’t last long!) rather than making fiscally prudent cuts to re-size the completely bloated public sector releasing material funds for significant tax cuts.

  • Gina Dean

    Total freeze on jobs in public sector, remove all the credit cards that seem to be floating around spending our money on non essentials. All money for aid to stop, out of the EU. Saved 20 billion a year. When will goverments of all ilk remember that it is not their money to spend, we have all had to pull our belts in it is time that they did the same.

  • Daniel Maris

    GO must go…GO = Game Over for the Tories.

    As predicted, he has completely fouled up and ended with the worst of possible cases: no cut in the mountain of debt, cuts in services and benefits, tax breaks for the rich, pay cuts for all working people in the public sector and much of the private sector, no overall GDP growth and (with mass immigration) deepening cuts in per capita GDP.

    He’s been fighting an ideological war that dates back to the post war period and has little or no meaning now. He’s happy to see mass immigration, no growth and cuts in services as long as he can cut a few jobs in the public sector.

    This isn’t “Plan B” because it isn’t in any way coherent. This is a rout not a retreat, panicking not planning.

  • Marcus

    I think it’s simple, a trial of: Massive tax cuts. No public pay cuts.
    The consequences of which are:
    a) Does not improve growth and the country continues growing debt and not tackling deficit.
    b) Growth, start to correct deficit and debt.

    Alternatively continue on current path which has resulted in option a) for the last 2 years.
    What have we got to loose if it does not work? A bit more debt? A slightly larger deficit? Who is genuinely counting this astronomical figure being billed to our grandchildren anyway?
    Try it for 6 months and see if it works. If not, revert back to the printing-money-and-no actual-cuts-plan that isn’t working. Maybe even raise taxes as it would be easier to accept.

  • dalai guevara

    When Nigel Lawson goes on record on Newsnight to proclaim that he also claims the winter fuel allowance, we know that there is still plenty of meat on the bones to cut. In fact, fat tissue more like.

    • alexsandr

      they could start by making WFA taxable. Nice simple measure, it doesnt fix the basic problem but it helps.
      Could be in the 2013-14 tax year.

  • itdoesntaddup

    What a Balls-up.

  • William Blakes Ghost

    Everyday another failure from this pointless Coalition. If they cannot manage Government spending they have no reason to be in Government. This isn’t Osbourne’sa failure. It’s the Quads failure!

  • ScaryBiscuits

    Dropping the fiscal target will lead to the credit rating agencies downgrading the UK. Then all the money printing in the world and off-balance sheet borrowing for rail or house building won’t be enough to get gilt rates down. Interest rates will then rise meaning that government spending will rise further, meaing pressure on spending and our credit rating will rise exponentially.
    And this viscious circle is better than the alternative? Cameron will be lucky if he does not repeat Major in causing a financial crisis.
    After two-and-a-half years of talking about austerity but not delivering it, the part-time chancellor is about to be mugged by reality. Meanwhile, according to ConHome, their more optimisitc than they have been for ages. And they call Nadine mad?

    • an ex-tory voter

      The saddest thing is that had Cameron and Osborne actually walked the talk and made spending cuts we might have avoided the inevitable downgrading of UK Gov’t debt. They have completely wasted the period since the last GE and now Joe Public will pay the price while while these rich fools will walk away unscathed.

    • telemachus

      Dropping the fiscal target will lead to the credit rating agencies downgrading the UK.
      Doubt it
      Christine Lagarde is for it
      It is time now for boldness
      If Osbourn cannot hack it, lets have the charismatic one

      • telemacharse

        Try learning how to spell Osborne dickhead

  • http://twitter.com/BerkshireJames James Randall

    Amazing how difficult it is to cut spending after years of departments being used to over-inflated budgets

    • ScaryBiscuits

      No, it’s amazing how difficult it is to cut spending when you don’t really try, when some of the most wasteful departments have their budgets ring-fenced and when you increase spending on politcally motivated gestures such foreign aid or electric railways for the Welsh valleys.

      • james102

        Exactly.
        The state sector needs to be reduced and as it will be done in the most harmful way if left to that sector to decide priorities it should be done by targeting legislation that causes problems.
        The first area is repeal the Equalities Act which is based on the fallacy of proportionate outcomes and these types of provision cost about a billion a year. Next foreign aid should be subject to a type of zero based budgeting exercise. Priority should be given to countries prepared to take back illegal immigrants and prisoners and possibly prepared to let us use their prisons to house foreign criminals whose countries won’t accept them back. Carbon targets need scrapping as an “emergency temporary” measure.
        The LibDems could be brought into line by threatening an In or Out EU referenda.Clegg puts the interest of the EU before anything else so would keep his party in line.

      • james102

        Exactly.
        The state sector needs to be reduced and as it will be done in the most harmful way if left to that sector to decide priorities it should be done by targeting legislation that causes problems.
        The first area is repeal the Equalities Act which is based on the fallacy of proportionate outcomes and these types of provision cost about a billion a year. Next foreign aid should be subject to a type of zero based budgeting exercise. Priority should be given to countries prepared to take back illegal immigrants and prisoners and possibly prepared to let us use their prisons to house foreign criminals whose countries won’t accept them back. Carbon targets need scrapping as an “emergency temporary” measure.
        The LibDems could be brought into line by threatening an In or Out EU referenda.Clegg puts the interest of the EU before anything else so would keep his party in line.

    • HooksLaw

      Spending is being cut, if you cared to look. Hundreds of thousands of public sector jobs have been and are being cut if you cared to look. Tax revenues are falling which is why the deficit target is behind programme.

      Its a funny recession we are in where we are seeing massive investment in car building and rising numbers of car sales and another fall in unemployment.

      • Publius

        “Its a funny recession we are in where…”

        A clear example of what happens when you print money and then spend it. It’s like magic, isn’t it? And so easy.

      • Publius

        “Its a funny recession we are in where…”

        A clear example of what happens when you print money and then spend it. It’s like magic, isn’t it? And so easy.

  • Paul

    Duff economic policy, and a duff election policy that saw the Conservatives have to form coalition with the dismal self-serving Lib Dims – what a coincidence that Osborne is responsible for both.

  • alexsandr

    its all unraevveling isn’t it?

  • Nick

    What debt?

    Ah just the borrowing.

    The debts such as the massive pension debts are ignored.

    • james102

      And PFI schemes.

      • alexsandr

        and notwork rail. £2,822 million at 31/3/12 according to their website

  • Molly

    Cameron will soon learn that the political cost of keeping the hapless Chancellor will be greater than if he’d had the cajones to fire him in the recent reshuffle. Osborne is a lightweight; a game playing, C- student politician, who can’t do tactics or strategy.

    An iceberg nears. The navigator fiddles.

    Stand by the lifeboats.

  • Molly

    Cameron will soon learn that the political cost of keeping the hapless Chancellor will be greater than if he’d had the cajones to fire him in the recent reshuffle. Osborne is a lightweight; a game playing, C- student politician, who can’t do tactics or strategy.

    An iceberg nears. The navigator fiddles.

    Stand by the lifeboats.

    • Nick

      Correct on the consequence. The scenario isn’t an iceberg in the way. It’s that the ship is trapped in ice and is being squeezed to destruction. What’s Captain Osbourne going to do? There is no solution.

      • ScaryBiscuits

        There *is* a solution. It is to stop printing money and to start spending less than we are earning.

      • http://twitter.com/ianwalkeruk Ian Walker

        Scrap the DFID budget. Halve all public sector pensions immediately. When they go on strike about that, you’ll find out which ones are superfluous – sack them, then give the remainder half of the pension cut back as a sop.

        This should eliminate the defecit. Then pass a law making future defecits illegal.

        • telemachus

          Just to prove the revanchist right are illiterate

          • telemacharse

            All you can prove is what an idiot you are.

  • Alan Eastwood

    Plan B-. It looks like the part time Chancellor will be leaving the country in a worse mess than what was inherited. Time they brought in John Redwood.

    • Nick

      Unfortunately Redwood is financially illiterate. He promised at the election to publish the values of all government debts. He’s reneged on that promise.

      Since those debts are the debts that matter to most people, since its their state pension, state second pension, civil service pension, …. it serious.

      Now the treasury say that they can always change the law to get out of paying, so they treat it as not being a debt. Now the flip side of this argument is that if you need a law change to get out, it means under current law it is a debt.

      To take money and create a debt with no intention of paying it in full is fraud.

      Redwood knows this and that’s why he won’t reveal the debts the state has.

      • Paul

        Is Redwood in a position to do these things?

      • Andy H

        If you took the time to find out, you would no doubt realise the John Redwood is not in the Government but a backbench MP. He has no more way of publishing Government debt then you or I.

        Maybe you should focus your frustration on the socialist idiots that created this mess – As John Redwood has actually proved to be on the correct side of this (and many other) arguments…

      • Publius

        Redwood is not even in the government.

      • Keith

        Nick – everything in your post is total rubbish. Keith.

      • itdoesntaddup

        Redwood forecast on many occasions that the plan to back-end cuts would not be implemented. He’s just been shown to be right again.

      • an ex-tory voter

        A complete load of horse manure!!

        • telemachus

          Redwood?
          Yes

    • telemachus

      Remember Redwood has seriously advocated cuts……..
      Cuts in taxes for the rich.

      • telemacharse

        Bog off dummy

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