Thursday, 25 April 2013

Four things Osborne does not say about the deficit

George Osborne constantly repeats his two key messages on the deficit. (The deficit, which is the annual excess of spending over income, is often confused with the national debt which is the total of three centuries of accumulated deficits.) 

Osborne says that he has reduced the deficit by a third and that it is coming down year on year. His words sound impressive but they are highly misleading – as they are designed to be.

Here are four things Osborne does not say about the deficit
  1. Almost all the reduction in the deficit took place between May 2010 and April 2011. Since then deficit reduction has effectively stalled.
  2. The deficit reduction which took place between May 2010 and April 2011 was mostly achieved by cutting capital investment e.g. cancelling projects to build roads, hospitals, schools etc. The problem with this approach was that, as even Osborne seems to have eventually realised, these cuts were self-defeating. They led to a reduction in economic activity, which led to lower growth and thus to lower revenue in taxes and higher payments in benefits and, therefore, ultimately to upward pressure on the deficit – and, of course, no new roads etc.
  3. Osborne had to engage in desperate measures to make sure that last year’s deficit came out lower than the one for the year before.  These even included instructing certain Whitehall departments to delay payments until the next financial year – the old “cheques in the post” stratagem, familiar to dodgy businesses everywhere. In the end, the deficit in 2012/13 was calculated at £120.6 billion which was lower than the deficit in 2011/12, of £120.9 billion, but only by a tiny amount, 0.24%, well within the margin of error.
  4. In 2010, Osborne said he would eliminate the deficit by 2015. Since then he has had to move his target date to 2018. At the rate of progress of the last 12 months, it will take centuries to eliminate the deficit.  
Osborne’s deficit reduction plan is failing badly. He was the one who made this his top priority. He gave it precedence over and above growth, employment, inflation, living standards or any other measure. He cannot complain if he is judged on its success or failure.

Osborne’s fundamental mistake was not to understand that it is almost impossible to reduce a deficit without economic growth. His own policies killed off the economic recovery that he inherited in May 2010.  And later today we will learn if the economy has entered into a triple dip recession. 

I do not suppose that Osborne has ever aspired to be liked as a caring politician. I imagine that he has wanted to be respected as a competent one. He is likely to end up being despised as neither caring nor competent.
                                                                                                                                No. 303

1 comment:

  1. Thanks that clarifies that one for me. Excellent work.