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Budget 2015, explained in ten graphs

18 March 2015

3:42 PM

18 March 2015

3:42 PM

As ever, the story of the Budget was hidden in the small print. There are no hidden tax rises, but the story isn’t really in the tax. It’s about the cuts to come, the incredible jobs recovery and the games already being played for the general election campaign. Here’s my take:-

1. The rollercoaster of cuts to come:-


The OBR has rather huffily pointed out the weirdness of the cuts planned for the next four years: a ‘rollercoaster,’ it says, devoid of logic. After the election, cuts will be four times sharper than those implemented in this (election) year. Then most weirdly of all, right at the end, spending soars. The OBR says:-

‘A much sharper squeeze on real spending in 2016-17 and 2017-18 than anything seen over the past five years followed by the biggest increase in real spending for a decade in 2019-20.’

The OBR obviously thinks this is bonkers, and rightly. there’s no economic reason to plan cuts in this way. No normal company would behave in this way: to actually plan massive cuts one year, followed by sharp increase the next.  It’s pure politics.

But note how the worst cuts to government departments are yet to come. The Tories loathe the above OBR graph as much as Labour love it, by the way, and say it doesn’t factor Osborne’s planned £12bn of welfare cuts nor the haul they envisage from cracking down on tax avoidance (which is the new ‘cracking down on waste and efficiency’).

2. Look, Ed Balls! Spending no longer heading to 1930s! 

Screen Shot 2015-03-18 at 16.56.23


So why did Osborne pencil in that weird spending splurge in the last year, 2020? Well, as things stood his target for 2020 spending took the state spending/GDP ratio to 35.7pc. But what he didn’t realise back then was that this percentage was just lower than Gordon Brown’s record low: 35.9pc. This allowed Ed Balls to play a rhetorical trick: to say that the wicked Tories would take spending ‘back to the 1930s when there was no NHS’. This is nonsense, Labour have focus-grouped this attack line and it goes down well.

Osborne hadn’t seen this attack line coming; amusingly, he was so keen to play the fiscal hard man that he hadn’t realised he’d walk into Balls’ trap. And all for spending of 0.2pc of GDP! So now he has now decided to jack up spending (hence the ‘roller coaster’ in Graph 1) and says he’ll settle for a £7bn surplus in 2019/20, far lower than the £23bn surplus he wanted in December. So this means he’ll hit 36.0pc, a tad above Brown’s 35.9 per cent. Thus denying Balls his 1930s soundbite. Ah the games, the games.

3. Putin’s favourite graph: cuts + protected departments = defence butchered

Screen Shot 2015-03-18 at 14.28.31


You get the feeling that the OBR doesn’t like ring-fencing, and its graph above shows the implications of protecting health, schools etc. It means that any non-protected departments (police, defence, communities, culture) can expect to be butchered once the real cuts details in graph 1 get going. This explains why David Cameron is so reluctant to commit to spending 2pc of GDP on defence: he has made so many promises that he can’t make any more. As Philip Hammond memorably put it, ‘there are no votes in defence’.

4.  National debt – still damn high. And way above the Labour plans that Osborne once considered dangerously high.

Screen Shot 2015-03-18 at 13.07.00

During his Budget speech, Osborne laid it on thick about how debt/GDP ratio would be falling. He managed to engineer this fall by flogging a few state-owned assets. But things hadn’t changed much, and he is still way adrift from his original target. But he can get away with more debt because…

5. Borrowing costs are so low that Osborne is borrowing more, but paying far less interest.

Screen Shot 2015-03-18 at 15.48.41

Osborne is well adrift from his targets on debt and deficit. But the bond yields (i.e., the interest he is paying) have fallen sharply, so he’s paying far less in debt interest. It’s a global phenomenon, and one that has saved the Chancellor’s bacon. The collapse in global bond rates are a get-out-of-jail free card. This is why he has given himself an extra four years to balance the books.

6. The jobs miracle – better than anything in the Budget. 

The tax cuts and welfare reform have conspired to give Britain the best jobs growth in Europe. Osborne said in his speech that Yorkshire had created more jobs than France and he’s right. The corner shop down the road from my house has also created more jobs than France insofar as it employed more one person last year: employment in France fell.

But it’s a sound overall point, and one I make in a cover piece for the new magazine, out tomorrow…

7. Osborne now milking rich more than any Labour Chancellor did but what he didn’t say is that he did this by cutting the top rate of tax.

Screen Shot 2015-03-18 at 23.07.17

8. Five jobs created for every one public sector job shed  A ratio that Osborne did not dare imagine.

Screen Shot 2015-03-18 at 22.45.36

Ed Miliband (see video, above) predicted that a private sector job would be lost for every public sector job lost. Osborne has demonstrated that you can create a jobs boom in the middle of an austerity drive if you cut taxes and reform welfare.

9. Savers’ real problem: no return on investment. 

After his bungs to pensioners, Osborne is now offering to bung £3k to first-time buyers to compensate for their inability to get a decent return from a Cash ISA. Savers will be able to deposit up to £2,400 a year in a new Help to Buy Isa, and Osborne will top it up by up to £3k when it’s sued to buy a house.

Also, no tax on the first £1,000 of interest on bank interest, or £500 for higher-rate taxpayers. Yada yada yada. It’s a poor substitute for having a properly-functioning savings market.

10. The collapse of North Sea oil revenues which poses an obvious threat to any independent Scotland.

Screen Shot 2015-03-18 at 13.37.25

The solid lines are the old estimates, the dotted line is the new estimate – i.e., a 90pc drop. Osborne made much drama about staging a rescue for the industry: cutting petroleum revenue tax from 50oc to 35pc. Only the UK can do this, he said.

Politicians should leave the wealthy alone – they already contribute more than their fair share

Jtazoin us on 22 April for a Spectator debate on wealth and politics. Are wealth taxes the answer? Or is it wrong to squeeze the rich? Chaired by Andrew Neil.For the motion: Toby Young and William Cash.Against the motion: Owen Jones.Remaining speakers to be announced. For tickets and further information click here.

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Show comments
  • Janet Abruzzi

    The data visualization of the above report is just the best,the graphs were plotted very much correctly.The drafting is much detailed so that it took ten graphs to show the details.I made use one online charting website ,for my reports and draft a few 3d graphs.

  • Conway

    “This explains why David Cameron is so reluctant to commit to spending 2pc of GDP on defence: he has made so many promises that he can’t make any more.” It’s a waste of time his making promises anyway. Nobody believes him.

    • e2toe4

      Taking that *promise * on immigration or the one about eliminating the deficit…why don’t they ever just say *I’d like to eliminate the deficit/reduce net immigration, and will be working hard to do it, but it isn’t that easy…and anything can happen that could blow us of course*

      The “Will do this” statements have blown credibility almost as much as the *all in in it together * (except the bankers)..great soundbite, so great it’s memorable unfortunately….. because it wasn’t backed up by any visible action as the very top, most visible people continued to trough the money as everyone else’s wages stood still.

      Cameron got a draw out of the game in 2010 when the opposition were playing with 9 men on the pitch..and this time a bit like Man Utd..with everything going for him..he’s still struggling in 2015 to knock the ball into an open goal.

  • James

    How much is wasted on unnecessary court cases.

  • trace9

    “.. France insofar as it employed more one person last year: employment in France fell. ..”

    – Plus one more text-checker at the Spec.? A fairly courageous article!

  • Makroon

    Actually, only graphs 5 and 6 are worth contemplating.
    Mr Nelson is correct that reduced debt servicing costs has enabled Osborne to reach a plateau for the debt one year before schedule (debt should fall next fiscal year – is that a ragged cheer from the Kippers I hear ? No ? thought not), but therein hangs a strange institutional tale.

    The OBR ‘red-book’ for the budget has become far more difficult to read with turgid prose and convoluted logic. The proud “independent forecaster” is rapidly becoming just a another “official” producer of mediocre, impenetrable documents.
    Chote is under pressure from smart-ass, second-guesser Paul Johnson from the IFS, who really fancies himself as OBRmeister under chancellor Balls.

    The Autumn statement was late in the year, and the budget is early, so the OBR has had limited time. They have updated the Autumn figures in a pretty mechanical way, on the basis of much lower inflation, and therefore lower tax revenues (less fiscal drag) and lower gov. expenditure (lower indexation).

    Everybody else, from Goldman-Sachs to every city bank to random pundits have been guessing at how much below target the deficit will come in for 2014/15. Estimates range from £5B-£9B (this was assumed to be Osborne’s “giveaway headroom”).
    However, the OBR has guessed at a paltry £0.9B (which rather crimped Osborne’s freedom of action).

    Of course, the OBR has to work with the official statistics from the ONS. An organisation with a growing reputation for odd and counter-intuitive, statistical “outliers”.
    In the Autumn, they suddenly revised growth in the current year, down from 3% to 2.6%, apparently with no questions asked (that’s about £7B incorrectly calculated). Everybody else, including the Bank of England still regards growth in the current financial year to have probably been a tad over 3%.
    The latest ONS “surprise” was today’s bulletin that average total weekly earnings in the quarter to January, had increased by 1.6% – a DECLINE from the previous quarter (2.1%). This, after every employment and HR body, every industry federation, and the BoE had been confidently predicting a steady rise in wage increases,
    News of this “surprise” was claimed to be responsible for Sterling falling from 1.40 to 1.38 to the Euro – what power to move the market these agencies have !

    Conclusion: take all statistics, predictions and “first guess” estimates with a very hefty pinch of salt.

  • Jupiter

    What is the point in predicting what will happen in 2020? It is too far away to be accurate and will inevitably be wildly wrong.

    • Makroon

      How else could you plan your business/government finances ?
      It is only 5 years.

  • Count Dooku

    FML. Fraser, please get over the Darling comparison in #4. You CANNOT complain that deficit targets have been missed when you just previously in #3 complained that departmental spending would be “butchered”.

    Please can you clearly state what you would have done instead on the spending side? Perhaps cut the NHS budget? Education? Cut pensions?

    • Makroon

      Fraser is a journalist, not a minister, and is paid to criticise (in a hyperbolic way apparently). It’s par for the course, old chap.

      • g978

        He should criticise when it is fair to do so. I agree with Count Dooku – spending has been curtailed in many areas and the deficit is coming down in a sensible fashion. To turn a 10% deficit to a surplus in 5 years was always unrealistic.

    • Machina22

      Foreign aid, HS2, green subsidies, the EU budget, benefits for those living abroad, child benefit. There are plenty of areas ripe for cutting.

      • Count Dooku

        I am in favour of all those you mentioned (other than HS2) but they are all peanuts and would lead to a max 10bn saving pa.

        -Foreign aid is up just 3bn
        -HS2 has not been built yet so it’s a zero saving.
        -Green subsidies are paid by consumers, not the government. They don’t dire affect the deficit.
        -The EU budget has been cut, but you can thank the same Darling for an increase in our contribution.
        -Cutting benefits for Brits on tour will save next to nothing and would cost a fortune to administer. And no way will you stop pensions for people abroad (which is by far the biggest chunk).
        -Changes to limit the number of children eligible for child benefit will save next to nothing now. Savings are in the future unless you want to limit it for children already born.

        The cuts required to meet the “Darling plan” would have meant abolishing entire departments and major transfer payments , not just a trim here and there. To me this would be a good thing but Nelson manages to want less debt and more spending without actually offering solutions. It’s getting boring.

        • berosos_bubos

          12+20 = 32 just for starters.

          • Count Dooku

            I don’t see Fraser advocating that we abolish DFID or leave the EU.

    • Shinsei1967

      It’s also not very helpful comparing actual events with what someone (with a general election to win) promised to do.

      Darling’s policies would almost certainly not have resulted in what he was forecasting back in 2010 because they took no account of the fact that the EU was about to blow up with the Greek crisis, nor that a high oil price would send inflation up to 5%, thus hitting everyone’s real wages.

      • Peter Gardner

        You can almost guarantee a Greek type of crisis every two years. It’s hard only to guess the timing.

    • Ian Walker

      He loves to trot out this graph, and completely ignores the effect that the Eurozone crisis had on slamming the brakes on the recovery over the first three years, which neither Darling nor Osborne were expecting or planning for in 2010.

    • realfish

      Agreed CD. And also not least because the Darling plans have the luxury of not being impacted by the Euro crises of 2011/2.

      It is probable that Labour in Government would have not ridden out the Euro storm in the way that Osborne did.

  • Molly NooNar

    So the only justification for the draconian cuts Osborne wants to impose upon people is so that he can ramp up spending to secure re-election in 2020? It’s nice when politicians put national interest above party political interest, isn’t it?

    It’s all one big lie. Borrowing costs cheaper than ever and instead of using the money to invest in projects that would more than pay for themselves many times over in the forthcoming years, he is ideologically committed to cuts.

    • DWWolds

      One of the key reasons for Osborne’s cuts is to reduce the massive deficit left behind by Labour due in no small part to the massive increase in public sector and welfare spending under Gordon Brown.

      • alexw

        You have completely missed the point. If you can get an economic return from an investment that is higher than borrowing costs you shrink the deficit, while improving rather than reducing living standards.

        A perfect example of this would be an en-mass council house building program (say 200K houses a year just as we did in the 1950’s, 60’s and 70’s). The government takes ownership of a valuable asset, generates a long term income stream, reduces living costs, and reduces housing benefit costs through reducing the amount of rent landlords can extract. Everyone (except landlords) would have been a winner. Moreover, it would have reduced the deficit by more than anything else he’s done, but because of an idiotic adherence to “shrink the state” ideology he didn’t and chose instead to reinflate our housing bubble.

        And we are supposed to congratulate him over this stupidity? My answer is a resounding no.

        • starfish

          Where is the money to purchase the land and build the houses coming from?

          We are trying to reduce a current account deficit and accumulated debt

          You can’t solve that by taking on more debt – even if you believe the income from your housing investment is going to solve the current deficit problem

          And current interest rates won’t last forever

        • Makroon

          Government “investment projects” have an horrendous record of coming in way over budget and very late, so, NO they certainly don’t guarantee a return.
          For example, Osborne’s new, computerised, instant tax returns – watch this space.

          • alexw

            IT project’s are horrendous in terms of failure rate no matter whether it be in the private or public sector. You just generally don’t see the failure of private sector IT projects splashed across the papers so never hear about it.

            In reality it depends on what the investment project is. Roads for example are provided for via state funding. Now when is the last time you heard of a road building project going way over budget and 5 years late?

            Housing is basic simple infrastructure which is hard to screw up. We built 150-200K council houses a year 1950-1980. The vast vast majority of those are still livid in. So if there is one infrastructure project that would guarentee a positive return with nigh on zero failure rate it would be housing.

            • Makroon

              I agree with you on many private IT projects.
              But building houses in the 1930s, 1950s and 1960s, was rather different from today’s hide-bound environment.

              • alexw

                But that’s what government is for. To make the long term decisions necessary to provide for the long term future of our nation. If it won’t take on the vested interests and do what is needed and necessary then exactly who will? If all they do is throw out short-termist populist bungs to their client voters, which is all labour and the conservatives have done for the past couple decades, then what is the point of having them in charge?

            • g978

              The reduction in interest payments is because this Government has maintained Britain’s credit rating and is reaping the benefit of that.

              • alexw

                Absolute rubbish. The interest payments have fallen because the world is entering deflation. Not just the UK but everywhere. There is massive global over capacity, a deficit of demand, and as a result a deficit of worthwhile investment opportunities. Given global saving rates are at record highs (~25% of world GDP), you then a have a perfect storm of too much money chasing too few opportunities, and as with anything too much supply vs too little demand forces prices down. Thus we see record low borrowing rates.

                Thus the reduction in interest costs is not down to government competency but economic miss-management. A vibrant growing economy would not have such low gov borrowing costs, because there would be better places to put that money in the economy at a higher rate of return.

        • e2toe4

          It seems houses aren’t built because of the fixation that prices *must* go up… rising, nay soaring house prices are always *good news*, and news must always be good.

          I think if war torn, rationing 1950s Britain could build enough homes then however bad the credit crunch was, and however long the aftermath has been, we can do it now but I think it’s a (wrong headed) fear of that effect on property prices that stops it happening more than any other reason.

    • chasdf

      The State takes and wastes far too much of our money , I would have thought that was obvious. Anyone who reduces that is a good egg. Whether Osborne can or will who knows. what is certain is that labour/SNP will not.

  • Varoufake

    Fraser, you have no idea what it feels like having the Germans stick it up you.

    The reporting of Public Sector Net Debt Ex rather than General Government Gross/Consolidated Debt (Maastricht) is illegal now. Honestly, it is.