Coffee House Specdata

Budget 2014: what Osborne didn’t tell us about the crunch to come

23 March 2014

8:32 PM

23 March 2014

8:32 PM

Getting to the truth of a Budget is far easier under George Osborne’s new system. His creation, the Office for Budget Responsibility, now writes its own report  (pdf here) and it’s like having your own mole in the Treasury flag up what the Chancellor would rather gloss over*. I read its report over the weekend – it’s too rich a document to skim on Budget day. I found a few charts that CoffeeHousers may be interested in.

The graphs are all about Osborne’s decision to defer tough decisions – what James Forsyth brilliantly called his Saint Augustine tendency: give me fiscal discipline, Oh Lord – but not yet. Osborne’s glacial progress on cutting total state spending and his decision to abandon his 2010 debt reduction target (see my earlier blog on six scary graphs) will mean we’ll be spending £75bn on debt interest – way more than education or defence. This has produced the above graph on core government spending – one that that looks so radical as to be incredible.

1. Government consumption (as a share of GDP) falls to the lowest level since records began in 1948.  This is the graph above, OBR Chart 3.39. And its implications? Here’s Michael Saunders from Citi (pdf):-

The post-2015 squeeze in the current plans would probably require a major reduction of the size and role of the state, well beyond the measures implemented so far. Within the current coalition, the Lib Dems may be reluctant to go along with such a plan”.

His point: don’t expect Labour to implement the kind of pain that Osborne shied away from. Don’t expect the LibDems to sign up to it in a future coalition. And given that the chances of a Tory majority are slim, should we expect anyone to do it? Or should we just expect a new fiscal crisis?


We’re all in favour of small government at the Spectator. But the graph is scary because it suggests that the years 2015-20 are being used as dumping ground, for problems deemed too difficult to solve in 2010-15. A crisis deferred, rather than a crisis addressed.

2. Dumping the agony on 2015-20. Am I unfair in suggesting that Osborne has ducked tough choices now? Here’s my second graph, from Citi’s Saunders. He has spotted that, with each Budget, more pain is deferred. How much more? The below graph shows, in red, the work that Osborne plans to be done by whoever is Chancellor between 2015-20. The green is the amount of pain he plans pre-election – which seems to shrink all the time…

Screen Shot 2014-03-23 at 20.12.25

3. After health, what’s left? Remember, promises have been made about keeping the NHS as expensive as it is now (or ‘protecting’ its budget). Promises have been made to increase overseas aid. And promises to the people to whom we’ll be repaying all that debt. So what does that leave?

Osborne hasn’t said, he’s in no rush to spell out his post-2015 spending plans. But, deliciously, the OBR has pieced it together anyway and forecast the mother of all squeezes on unprotected departments – the political soft targets like defence, police, prisons etc. I suspect that whoever threw this graph into the OBR report was politely trying to point out that protecting NHS budget, when the mega-squeeze begins in 2015, is just not tenable. It means health goes from 29pc of departmental spending to about 45pc.

Screen Shot 2014-03-23 at 20.20.19

*The OBR still has defects: it has little faith in supply-side economics, and it fails to analyse the (radical) implications of monetary policy, which is where the action is actually happening under this government. When Robert Chote was appointed to run it, my heart sank: he was from the Institute for Fiscal Studies and I feared he’d bring with him its biases (no interest in dynamic tax scoring, overseas tax-cutting experiments or even domestic ones). But Chote, a former journalist, is first and foremost an awkward git. I mean that as a high compliment. So his OBR document is choc-full of important facts that the Treasury are in no rush to tell us. Long may this continue.

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Show comments
  • First L

    Yep. Remember – all our economic problems are Labours fault. The pain will come today or tomorrow, but it will come. And when it does, remember who to blame – Gordon S**TH**D Brown.

  • The Commentator

    If Labour win in 2015 a bond market strike and currency collapse seem inevitable. When that happens it won’t just be Trident that goes. The NHS, the BBC, the state pension, working-age benefits the whole lot will go up in smoke. No wonder Putin isn’t taking our threat of economic sanctions too seriously. Russia has a huge and growing defence budget, a large government surplus and vast foreign currency reserves. The polar opposite of everything we have…

  • andagain

    I’ll believe a Conservative is serious about cutting spending when he wants to kill the Trident replacement. If you are serious about cutting spending,you are prepared to cut things you like.

    As it is, Conservatives only seem to want to cut spending on things they didn’t like anyway. They think they have an excuse, that is all.

  • roger

    Is it ‘news’ that the coalition is putting off real cuts, it was never likely that the toxic mixture tory/lib could agree to do what was needed. I suppose the Tory plan is to let Miliband dig an even bigger economic black hole and come back in 2020 when everything has collapsed, cowardice or despair?

  • Rockin Ron

    Be honest Fraser, it was a lovely Spring weekend. Did you really read the OBR budget report over the weekend? Or (as more likely) did you skim over it, extract a few charts and cobble together this ‘article’? Either way, you are no economist or otherwise you would not have had to rely on Michael Saunders.

    • Makroon

      Yes, indeed, Mr Nelson told us that “we follow Michael Saunders of Citi”.
      Errr, isn’t that the bloke who agrees with the BoE, that growth this year will be 3.5% (real) ?
      So, why is Nelson making a meal out of the OBR forecasts ?

  • ohforheavensake

    Remember, too, that there is no automatic link between debt levels and GDP growth: and remember that austerity is a self-defeating economic weapon (as this government proved between 2010 and 2012).

    Remember that, historically, levels of government debt have been higher (with no obvious link to economic performance); and remember that much of the government’s economic approach is now discredited (as this excellent post from Frances Coppola in Forbes makes clear)-

    Finally, remember that neither Fraser nor the Chancellor have any formal qualifications in economics.

    • Makroon

      That could be an advantage. Apparently “Danny” Blanchflower has all sorts of certificates, but the bloke has about as much judgement and common sense as his chum BrownBalls.

  • MrDavidbush

    I love the way well paid members of the elite London centric media don’t mind scary graphs. The pain they bring never affects them and those it does affect are, in the eyes of such smug sorts, out playing bingo. It’s not a matter of we feel your pain, more, we don’t even think about you.

  • itdoesntaddup

    Probably the most important fact is that Osborne expects the household sector to borrow an additional £260bn (mostly in the form of mortgages) to fund the economic “growth” that will allow a rise in tax yield to reduce the deficit. Indeed, he expects us to be spending £600bn on buying houses in FY 2018/19.

    It’s all based on the Help to Buy property bubble, propped up by a round of pension investment in BTL. Who will sort out the consequent banking crisis? I guess Osborne will retire to Deripaska’s yacht.

  • Lady Magdalene

    Osborne’s figures are apparently also predicated on annual net immigration of 150,000 throughout the next Parliament.
    So much for “cut immigration to the tens of thousands.” They’re not even planning on trying to do that … even if they could.

  • Daniel Maris

    I really object to this pensions wheeze of Osborne’s which is the equivalent of PFI, robbing the future to fund consumption now.

    • BarkingAtTreehuggers

      I believe you got that wrong.
      The money is no one else’s but yours, the notion that annuities bearing no return *have to be* purchased is theft – yet calling this policy a ‘savings revolution’ is utterly ridiculous.

      • Daniel Maris

        I say it’s robbing the future because inevitably people will need more state support in the future having blown a sizeable proportion of their pension pot on personal consumption now. So, nothing to do with your argument. Annuities are not an investment proposition, they are in effect an insurance proposition. Just as I don’t necessarily get all the value of my car insurance payments back.

        • BarkingAtTreehuggers

          No, I disagree – at no point will a personal pension plan deliver anything other than a return on personal investment. There is no intent to insure, a guaranteed return is paid on the basis of life expectancy – there is no way one could win buying a compulsory annuity in today’s markets.

          So whilst I welcome the market shake up that this delivers, the options opening up for those keen to invest further and so on, one must ask what the point of traditional pension savings could possibly be – it’s entirely comparable to what happened to life insurance decades ago.

          n.b. the notion that this will lead to an premature asset strip and spend is plausable. That is why I agree with you that the term ‘savings revolution’ is ludicrous. In the short to medium term the policy will deliver the diametrical opposite.

        • redgrouper

          No annuities are a rip off proposition. Most people would provide a better income for themselves by putting their money in a savings account and many would do better by putting it under the mattress and drawing it out at a steady rate. Anyone living long enough to get more out of an annuity than that is probably too old to continue enjoying the money at the same rate.
          Nobody should be forced to buy rip off insurance policies.
          The reason you have car insurance is because your car is a one off major item which you cannot afford to lose. You can spread the risk of your savings by diversifying how you invest them.

        • manonthebus

          Your first sentence reiterates a question I asked after the budget. If a pensioner blows his pension fund on conspicuous consumption, will he be allowed to turn to the state for support over and above his state pension (currently only about £7,000 pa)? If the answer is YES, then this pension reform is a fraud upon future generations. If the answer is NO, pensioners had better be very careful.

          • Daniel Maris

            Don’t forget housing benefit, free care in nursing homes etc – it could be far more than £7000 pa.

      • JoeDM

        All insurance systems – mortor car, life, pensions, flood, household contents, etc. – depend upon the pooling of risk. That is the fundamental foundation of the process.

        The reforms have broken that foundation for pensions. The result may be good or bad. We don’t know. But just look at the way de-mutualisation destabilised our financial system in the 1990s !!!

        • BarkingAtTreehuggers

          You point out a very important point – breaking up the foundations of pensions.

          You may have put away a million quid into a private pension plan over the years. As far as I am aware, upon turning 55 you may withdraw 30% or whathaveyou as a lump sum payment – by law you are then *forced* to invest 70% into annuities that pay nothing. After credit card interest (a theft that can be avoided), this must be the second largest legalised theft item in a man’s life. Has is been suggested this will now change? Good if so.
          What part of this ‘foundation’ ever was an insurance? It’s a savings plan. You die, payouts end. You live, payouts are linked to what YOU put in. There is no extra money.

          Curious how public sector pension never worked like that. So are they theft from the outset?

  • IanH

    Yes Fraser, you are as usual being totally unfair, the budget in 2010 did not (and could not) anticipate Europe blowing up. Nuff said, the rest of your speil is therefore bollox.

    • Daniel Maris

      You’re really claiming there was no whiff of a Euro crisis in 2010?

      • manonthebus

        Indeed, there was not. The EU leaders were busy telling us all that this was a crisis of anglo-saxon economics and the EU was immune from it.

        • Daniel Maris

          See this timeline:

          “In November [2009], concerns about some EU member states’ debts start to grow following the Dubai
          sovereign debt crisis.”

          By early 2010 the seriousness of the situation was quite clear.

  • BarkingAtTreehuggers

    Every single one of Gideon’s initial targets will not be met. He delivers on nothing. He doubles the debt with NOTHING to show other than asset stripping.
    That puts him in perfect company with that other non-delivery boy IDS, or that chap who promised the greenest ever government yet, as he is bust too, is now found begging for more cheap Russian coal.

    • tastemylogos

      we don’t get our oil from russia, you igonramus.

      • Guest

        dyslexia alert

        • Daniel Maris

          An igonramus sounds even worse though, to be fair.

      • Jack Jazz

        Where did he say ‘oil’?

        • tastemylogos

          he edited it

    • Daniel Maris

      Debt Officially Doubling Osborne – or if you prefer, DODO.

  • Makroon

    Usual bollocks from Nelson, trying to do what Red couldn’t.
    One minute Nelson is demanding ‘savage cuts’, next minute he’s accusing Osborne of planning ….. savage cuts. Doh.
    These OBR charts have been around for a while now BTW.

  • HookesLaw

    Don’t you ever expect to use the NHS Mr Nelson? Why do you want it crippled. Its undergoing a £20 billion efficiency drive (‘cuts’) after years of being hosed money by Labour.
    We see endless witterings about austerity…. how would that play if all the cuts were front loaded (with the resultant hammering of the economy society and tory credibility) as you clearly lust for.

  • Prof. Colin Talbot

    Your first point about debt interest is true, as far as it goes. Which is not far enought. The Bank of England has bought up £375bn of government bonds on which it receives interest payments from HM Treasury. And then gives the money straight back to them. Moreover Mark Carney has said there is no way in the forseeable future that the BoE will sell these holdings. So at the moment it’s the softest of soft loans on which we pay no interest and probably will never have to repay.

    • Fraser Nelson

      The OBR is operating on the assumption that QE holdings sold at £10bn a quarter from Xmas15 (See box 4.1)

      • HookesLaw

        There is nothing new about the future debt interest figures.
        Since when in office Labour always quoted %GDP figures they will no doubt find it difficult to criticise these numbers.
        You do not mention that it’s projected that there will be a surplus in 2017-18 and thus from then the interest payments should fall. From there on the pressure on spending will still need to be maintained. Do we think Labour would do that?

        Its regularly said that the debt problem will take a generation and more to resolve and yet when this is made plain you affect surprise.

        • BarkingAtTreehuggers

          Apologies, why is this MY debt problem?

          • HookesLaw

            Its not your debt problem – just go an emigrate and be a part of someone else’s.

            • BarkingAtTreehuggers

              Wow, you too can’t stand the idea of taking responsibility.
              Who would have thunk it.

              No, mate – I will restrain myself and wait until you’re 70. Then you’re top of the list – all of you square mile wonkers.

      • Prof. Colin Talbot

        Thanks – I shall have a look. But that’s not what Carney said to Treasury Select Committee – he said he couldn’t foresee when they would sell. At £10bn a quarter it’d take nearly 10 years… And it would still be effectively interest free for all that time. Thats assuming they dont use any QE to buy more bonds in the meantime.

        • Daniel Maris


          Do you know how much commission will have been earned by individuals through QE transactions? I can’t imagine the answer is nil.

          I’ve always suspected there is a scandal there…commission being taken on risk free transactions.

          But if you can assure me I am wrong that will be good to hear.

          • Prof. Colin Talbot

            I do not know about commissions, but there might well be some. What is certainly the case is that the bonds were originally sold to private institutions who then sold them to the BoE as part of QE. I can’t imagine they did not make a profit on the deal.

    • Molly

      Hi Colin.

      Surely UK plc should be considering the consolidated position of its indebtedness, not simply what the Government (owned by “us”) owes the Bank of England (also owned by “us”).

      The BoE has printed £375m of cash in the last few years, which it effectively loaned to the Government, which in turn spent the money. It’s rather as if money has been made by some magic machine in my left hand trouser pocket and loaned to my right hand pocket. The money in my right hand pocket was then spent by me to meet my daily needs, while I was in financial difficulties. Thanks to this magic machine, I, the trouser wearer, have no borrowings; simply a token loan between my trouser pockets.

      Now for a country, this approach is unsustainable in the medium / longer term (think Argentina / Zimbabwe, etc). But in these strange times, which we children of the 70’s never imagined could happen, inflationary pressure is negligible. And this lack of upward price pressure is despite a massive injection of government’s magically created ££, and deflation probably remains the risk. Thus the creation of huge amounts of money has been a good thing for the economy. It’s provided a kind of oxygen for economic survival.

      Why should this economic oxygen ever be “repaid”? The record that the oxygen was provided (aka the loan from the BoE to Government) should simply be cancelled. The financial effect would be just like a restructuring of a balance sheet in a corporate insolvency. The Government’s balance sheet would instantly improve with debt levels at more realistic levels of GDP, and interest payments fall.

      Carney may not be keen on this idea – no banker wants to forgive a creditor their loans. And if debt forgiveness occurred, there would be risks that the Government wouldn’t do the things which need to be done to improve its operations and make them more efficient. But the BoE would be in a strong position to dictate the terms on which the restructuring would occur, and also put in place provisions to ensure that the same trick were not pulled again in a few years time. The Bond markets would be fine, after an initial sputter, so long as they understood and were convinced both by the one-off nature of the cancellation and by the Government’s commitment to structural reforms.



  • HD2

    Raise pension age to 75 from 2020 and to 90 by 2030 (with staged payments in between, so you have a phased retirement over 5/10 yrs, rather than £0 pa on Friday and £5500 pa on Monday – as now.

    Then index pension *age* as effectively (‘triple locked’) as the pension sum itself, so that it rises in line with life expectancy (65 in 1945 = 89 today).

    This is something that every government since WW2 has known to be a crippling problem and every government since WW2 has chickened out from implementing.

    Anyone with other income sources meaning they pay basic rate taxes gets only 50% of a standard pension.
    Anyone with sufficient income to be a higher-rate taxpayer gets no State pension *at all*.

    Only once State pensions are truly cut down to size will the State take <25% of GDP and our economy start to move forward.

    Note that the original State pension (1906) was paid from age 70, which is roughly equivalent to 98 today.

    • saffrin


    • HookesLaw

      Garbage. Presumably we can easily pay fore the youth unemployment (and associated social unrest) with what we save in pensions.

    • Daniel Maris

      “our economy start to move forward” – to what may I ask…

      To Chinese living standards? – their per capita GDP is about 1/13th ours last time I looked.

      To the American system – which has such appalling outcomes in terms of longevity. health, personal happiness, murders, prison population and so on?

      To the Japanese system? – where a quarter of people in their fertile years have given up on procreation?

      What sort of economy do you want us to have? If it’s the pretendy free markets of economic theory we only have to look at our electricity bills to see how that works out.

      • Makroon

        Well, Danny, if we followed your socialist-green-loony prescription, we would soon be vying with poor old Bangladesh.

  • Dogzzz

    It seems to me that Osborne has decided that labour will win the next election and has decided to let them deal with the masses of debt they built up. Sort of a “screw you, it’s your debt, you sort it out!”

    • HD2

      Indeed. In May 2010 Cameron/Osborne made it clear to one and all that this was to be a one-term administration, with similar ‘salt the earth’ policies to be implemented from (roughly) now on, as Brown did from 2008.

      Hence Gove’s rapid progress in reforming Education.

      • IanH


    • Hexhamgeezer

      Don’t you mean OUR Liblabcon debt?

    • telemachus

      There is tendency round here to talk about the party of lies
      Now that party has been identified
      At least the debt gave us the most accessible health service yet and a modernised education system. Pity that as well as lying Osborne, Gove and Hunt are beginning to destroy all that

      • Colonel Mustard

        There is only one party of lies, lying and liars. That is Labour. Their whole ethos is the Big Lie. And you prove it daily.


        Throwing money at both gave us nothing but dead patients and illiterate children. And the debt of course.


        Oh, but look, we have nice new hospital buildings to die in and nice new schools in which not to learn how to read, write and add up, all saddled with Broon’s PFI.


        Osborne, Gove and Hunt need no impugning from the likes of you.


        • The_Silverback

          Keogh report stated that mortality rates fell substantially over previous ten years. You are a victim of spin my friend

      • Kitty MLB

        Oh can I do this again…
        Labours Red rose thou art sick
        the invisible worm that flies the night, in thou howling storm ,
        of caterwauling deceit,
        has found thy bed of crimson joy,
        and thy dark secret, life destroy.
        As the Colonel said, the party of lies, lying and liars.
        Your disease of a party, left people dying in hospitals where management became more important then patients, left our
        young terribly badly educated and lest we forget bonkers Brown
        and his little right hand man Balls bringing this country to its knees.

      • Cyclops

        That’s like praising someone for running up a huge bar tab on someone else’s credit card. Are you on drugs?