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Fisking George Osborne’s ‘hard truths’ speech

6 January 2014

6:37 PM

6 January 2014

6:37 PM

Today, George Osborne used a speech to administer what he called ‘hard truths’ about the economy. But in some cases, the truth was even harder than he let on. Here is a Fisk of his speech…

1. Size matters — ‘Government is going to have to be permanently smaller – and so too is the welfare system.’ 

This phrase — ‘permanently smaller’ — is designed to appeal to Conservatives. But in isolation, it’s pretty meaningless: smaller than what? The Brown peak? The below graph tells the story. The size of the British government (in red) used to be around average for a developed country (in blue). Gordon Brown’s massive achievement was the Europeanisation of the British economy – he bet that the Tories would be too scared to unwind what he did. That the gap between the red and the blue would not close. As things stand, Osborne’s plan is that, by 2015, he’ll be back to where Brown was in 2007, before the crash…

Screen Shot 2014-01-06 at 17.42.35


2. The deficit —‘When I took this job, Britain was borrowing more than £400 million every single day to pay for government spending. But as a result of the painful cuts we’ve made, the deficit is down by a third and we’re borrowing nearly £3,000 less for every one of you and for every family in the country.’ 

To most people (and companies) ‘borrowing’ means debt. Only in SW1 does “borrowing” mean “the increase in debt”. The above quote suggests that people are somehow being made better off. If only. Here’s what’s happening to debt per person:-

Debt per cap

And the Darling plan, which Osborne disparaged as being too slow, had the deficit being cut in half by now.

3. Cuts — ‘We’ve got to make more cuts. £17 billion this coming year. £20 billion next year. And over £25 billion further across the two years after. That’s more than £60 billion in total.’ 

What he doesn’t say is that he will increase spending in other areas, so the real ‘total’ will be just £7 billion. The £25 billion figure led the BBC today but the corporation did not run the figures past those published by the OBR, or put them into the context of total state spending. If they had, we’d see that in real terms, total state spending is going down by 1.1 per cent – or just £7 billion.

Screen Shot 2014-01-07 at 09.27.27

4. A dig at Labour — ‘Some say they’d deal with the deficit, but they shy away from committing to numbers.’

Cheeky! Is Labour’s failure to ‘commit to numbers’ much worse than Osborne’s strategy so far: committing to deficit numbers, then tearing up his commitment? The below shows how he has fared against the figures he published in June 2010:

Performance against borrowing targets

5. Debt and safety — ‘I want our country’s commitment to economic stability entrenched. Even after we’ve reduced the amount we borrow each year, that still leaves us with a high debt from all the past borrowing. That debt leaves Britain vulnerable – and I want to make us safe.’  

If high debt makes us vulnerable, how does he propose making us ‘safe’? Osborne’s published plans now run to 2018-19, and each year he proposes to increase the national debt. All he’s saying is that, at some point, he’ll stop making things worse. A far cry from a return to the ‘safety’ of Debt/GDP ratios of 40pc.

6. Cutting debts, promise! — ‘So I’m going to ask Parliament to vote too this year on a new charter for budget responsibility that will commit us to reducing those debts.’  

Parliament may take Osborne more seriously if he had proven able to even propose – far less enact – a plan to reduce debt. In real terms: £1.25 trillion now, rising to £1.57 trillion by 2018/19.

7. Earnings — ‘People’s earnings are expected to go up. Inflation has fallen, and that helps.’  

But in the past few years, far higher inflation has been tolerated – as the price of more employment (reduce real wages, and more people are hired but they tend to be paid less). The below graph looks at what’s happening to earnings and it isn’t pretty.

Screen Shot 2014-01-06 at 17.50.41

8. Tax cuts — ‘This April, you’ll see what that means in your wage packet. That’s when we increase the tax-free allowance to £10,000 – and it means in total an extra £60 or so a month for the typical worker.’

Does this oft-quoted figure factor in adjustments in welfare and tax credits? If not, the real sum will be way lower than £60.

9. Petrol — ‘I’m also freezing fuel duty again this year, so your car will cost £11 less to fill up than it would have done.’ 

The majority of the cost of the pump will still be tax, going straight to the Treasury. But petrol prices have fallen, so this is a genuine boast.

10. Jobs — ‘Thanks to this plan, there are now a record number of people in work in our country.’  

This is true, here’s the graph:

Screen Shot 2014-01-06 at 17.55.36

11. Does work pay? ‘And with our new Universal Credit, we’re going to make sure it always pays to work.’  

Not really: Universal Credit will lower the effective tax rate on the low-paid from 95 per cent to a maximum of 65 per cent. Now, will it “pay to work” if you keep £3 in every extra £10 you earn? I’m not so sure – especially if we’re talking hard graft on low pay.



12. Welfare cuts — ‘When you think about the competition this factory faces from around the globe, and the kind of world your children are going to grow up in, wouldn’t it make more sense that your government was spending your money on things like schools and science and a better NHS than more welfare?’ 

I think Osborne is making his gravest mistake here. He sounds mean-spirited, invoking ‘welfare’ as an obvious negative, as opposed to schools and NHS that he casts as obvious positives. But if welfare is high because it’s helping people make the transition from dependency to work, then that’s a price worth paying. But as Matthew d’Ancona’s brilliant book makes clear, Osborne doesn’t see welfare reform that way. ‘It was becoming depressingly clear to Osborne that [Iain Duncan Smith] did not regard welfare cuts as his priority but was engaged (as Osborne saw it) in a quasi-religious programme of mass redemption’. So Osborne seems suspicious about welfare reform was way of saving lives, rather than money. The Chancellor returns to this later in his speech, saying welfare cuts show…

‘how to reduce the deficit without even faster cuts to government departments, or big tax rises on people.’ 

But faster welfare cuts also impact  people. Osborne makes a mistake in talking as if he doesn’t care about this impact. I imagine that such tough messages go down well with focus groups – but it sounds mean-spirited. The Chancellor is not a mean-spirited politician. It’s a mistake for him to impersonate one.

All told, this was a bit of a cheeky speech – Osborne is taking a lap of honour for a race he hasn’t completed. But he has Ed Balls in a difficult position, and he has decided to press home his advantage – wanting to portray Labour as the party of the shirker, and the Tories as the party of the worker. This was an intensely political speech, seeking to draw the dividing line of 2014. As he knows, Balls won’t be able to do the spending much differently – just as he has not been able to do the debt much differently.


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