Another big government budget for the UK

George Osborne is a prudent man. Like any financially responsible person, he is aware that you need to produce before you can consume. In his own words, he wants to “act now so we don’t have to pay later”. And today this fiscal prudence led him to announce cuts to public spending of £3.5bn, though the cuts will come late in this parliament which means Osborne didn’t have to provide much detail on where they will fall.

The background for the cost-cutting is the economy. In November the Office for Budget Responsibility (OBR) predicted that the UK GDP would be £1,882bn, but that has now been revised lower by 1% (reality is that the UK, along with the rest of the world, is heading towards recession, but that is another matter), and the OBR predicts a shortfall in tax receipts for the rest of the decade. So Osborne, who has boxed himself in with his Fiscal Charter’s requirement to balance the budget by 2019/20, has been forced to act. Back in November, the OBR had just upgraded their forecast for the next five years, allowing Osborne to abandon the politically doomed tax credit reform by spending the unrealised proceeds of the improved outlook. Now the shoe is on the other foot.

The cuts Osborne is proposing amount to 0.5% of the budget. Predictably Labour are up in arms, arguing in their familiar vein that this amounts to a destruction of the welfare state. But are these tough measures? To put it in perspective, for the averagely salaried Brit, who makes around £26,000 a year, it equates to having to abandon a half pint of lager at the local pub every week. Not great, but hardly a major sacrifice if it helps turn your economy around.

Osborne would say he is adapting, changing his budgets to reflect the changing economic circumstances, but the truth is that he has no idea if the current spending cuts will be sufficient to eventually lead to a balanced budget as he claims he intends to. While in fact the forecast for government borrowing this year was revised down by £1.3bn to £72.2bn, borrowing will be much higher in the following years than previously expected. The debt-to-GDP ratio, which the government is committed to see falling, was revised upwards and will be rising this year as well.

And there is much uncertainty even around the official growth forecast, in fact the OBR’s 2015 GDP forecast has been fluctuating by more than 7% since 2010.

2015 GDP forecast and outturn ONS

Seen in the context of a 0.5% budget cut, these are not small details. Osborne must acknowledge, if not in public then at least behind the closed doors of 11 Downing Street, that there are just too many things he doesn’t understand; that there may be limitations to the econometric models which our political masters have so much faith in.

But even if the government was to achieve their targets, what does a central government budget of almost £600bn tell us about the role of the state in our lives? The government wants to spend more than £9,000 for every man, woman and child in the country. Yes, this budget highlights that Osborne may not be quite so prudent after all, but it also makes clear, as every budget has since Osborne became Chancellor in 2010, that cuts are driven by need, not desire. This Conservative government has no vision of reducing the state in any meaningful way; no principled argument for cutting government spending and reducing the tax burden on its citizens; no political will or intend to do anything but tinkering with the status quo.

Posted Mar 16, 2016

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