You have to hand it to George Osborne: he’s great at turning massive setbacks to his advantage. He pledged to get rid of the deficit over one parliament, now he’s boldly saying he’ll do it over two. Be had said he’d sort out the economy over five years (after all, Britain won a world war in six) but now – in a well-delivered and well-received speech – he’s solemnly declaring that we’re ‘not nearly finished’ and he should be re-elected to finish the job. So to prove it, he had a new plan for 2018-20: a new deficit pledge.
As ever with Osborne, it’s political. He calculates that Ed Miliband plans to run permanent deficits, as Gordon Brown did. So he’s made a pledge that he believes he Ed Miliband won’t be able to match: that government balances its books. Such pledges govern public finances in Sweden and Australia, allowing both countries to enter the crash with strong public finances.
Osborne had plenty to say about the virtues of balancing the books. Here’s a wee sample of it:-
‘Never again should anyone doing my job be so foolish, so deluded, as to believe that they have abolished the age-old cycle of boom and bust. So I can tell you today that when we’ve dealt with Labour’s deficit, we will have a surplus in good times as insurance against difficult times ahead. Provided the recovery is sustained, our goal is to achieve that surplus in the next Parliament. That will bear down on our debts and prepare us for the next rainy day.’
The briefing afterwards reinforced this message: high debt is really bad, it’s not enough to have it flat, it need to be cut. But a gap has emerged between Osborne’s rhetoric (cut debt) and what he is doing in government (massively increase debt). I very much agree with what he said: the points were well-made, the logic impeccable. My reservations lie with what he’s doing. For example, the below graph show how debt is rising more under Osborne’s five years than it did under 13 years of Labour.
Yes, Osborne inherited a bad situation. But he made it worse, deciding to borrow even more than Alistair Darling proposed to (and how we on the right trashed Darling at the time!). “We held our nerve in the face of huge pressure,” he said. That’s one way of putting it. Another is that he abandoned his deficit plan, and lost Britain’s AAA credit rating as a result. The below shows how Osborne’s resolve on tackling the deficit, burnished today, has rather melted in office.
So now he plans a deficit of £43 billion by 2017/18. Under his Plan A, we’d be in surplus three years earlier – today’s pledge is the consequence of his chickening out.
Osborne is thinking: extend this graph and it would probably dip below zero in 2019/20, the end of the next parliament. So let’s make a pledge, promising to do something that would probably happen anyway. And (encouragingly) all further consolidation would be done with spending savings, not tax rises. The main purpose of the pledge is to draw a dividing line with Labour.
Now, I know what you’re thinking: in the black by 2019/20? That’s seven bloody years away, the crash was in 2008, even Greece has managed a primary budget surplus. And we can’t even balance the books until the end of the decade? That’s about the size of it.
And why the delay? Because of the glacial pace of the cuts. There was a great moment in the post-speech briefing where an Osborne aide admitted that total state spending is going down by 0.5 per cent a year – a figure you won’t catch either the Tories or Labour quoting in public as it gives the lie to this ‘big cuts’ narrative that both are still keen on. And that’s why we’re now looking at a decade of cuts.
Like a child pulling off a plaster slowly, to minimise the pain, this government really is stretching out over several years what even a Labour government did with one man-sized tug (below).
One final thing. The economist Nassim Taleb once told me the technical term for five-year economic forecasts: ‘bullshit’. Make no mistake, these are fairytale figures. Economists struggle to project five months ahead, let alone five years.
But today isn’t about the economics, it’s about the politics. Osborne has decided to enter the next election cast as an axeman. The irony is that, if he really was one, this debate would have been over long ago.
PS: George Osborne pushed the boat out a little when he said:
‘The question for me, the question for our country, has been: Is your economic plan working? They’re not asking that question now.’
I beg to differ:-