Thursday, December 05, 2013
Prudence for a political purpose
Posted by David Smith at 02:00 PM
Category: Thoughts and responses

An initial response to the autumn statement.

George Osborne is a political chancellor and he lost no opportunity in his fourth autumn statement to achieve maximum political capital from the strengthening of the recovery this year.

Though the new forecasts from the independent Office for Budget Responsibility are unspectacular, 1.4% this year, 2.4% next year and 2.2% in 2015, they represent a significant improvement, particularly for the first two years, compared with the OBR's previous forecasts (0.6% in 2013 and 1.8% in 2014). This was, according to the Treasury, the biggest in-year upward revision for 14 years.

And if the OBR has been over-cautious - it predicts a slowdown in quarterly growth to just 0.5% during 2014 (broadly trend growth) from 0.8% in the third quarter - the chancellor will not mind too much. Better to present upward revisions than downward ones.

For similar reasons the chancellor will not be too dismayed by the OBR's cautious short-term forecast for public borrowing. A prediction of 111 billion this year for adjusted net borrowing looks high, though the rolling monthly numbers did benefit from some front-loaded effects.

But the big picture, which is where the politics comes in, is that Osborne has transformed himself from a chancellor struggling to meet his borrowing targets to one who has just shaved more than 70 billion off cumulative borrowing over the next five years, and intends to achieve a budget surplus over the medium-term (the OBR says by 2018-19).

In a year's time, parliament will vote on a tougher charter of fiscal responsibility, intended to enshrine falling debt and tough spending controls. The Treasury has issued a comparison of government debt on the assumption of a 1% budget surplus and a 2% deficit (the average in recent times). On the former, debt gets back down to 40% of GDP over time. On the latter it does not.

There's a lot more in the autumn statement, much of it in the detail. But the broad message is that growth is here to stay and borrowing will never again be allowed to let rip. Time will tell whether that will prove politically popular enough to give Osborne the chance to see it through. The coalition thinks it will. The main autumn statement document is here.