Chancellor George Osborne laid out his final Autumn Statement on the nation’s finances before the General Election next year.
But the government’s official budget watchdog appears far from convinced by current plans.
As expected, the Autumn Statement included a number of measures aimed to increase voters’ sense of wellbeing ahead of the vote. (It includes a cut in stamp duty paid on property purchases for 98% of homebuyers and populist tax moves like the so-called “Google Tax” on company profits shifted overseas.)
At its heart, however, it is a reaffirmation of the commitment to cut the deficit.
The problem, however, is that it cannot do this, based on currently announced plans, according to the Office for Budget Responsibility (OBR), the independent government finance watchdog.
The government has committed to cutting the budget deficit by the end of the next parliament — and suggested that it would achieve this ahead of schedule. However, it has also committed to protect spending on health, education, pensions and overseas aid. While laudable, this means that for it to achieve its target of cutting the deficit it will have to make even deeper cuts to other areas.
These departments, including the police, the judiciary, the military, the diplomatic corps, and “other” spending (shown by the green blocks in the chart below) could see funding slashed by as much as 40% in the decade to 2018-19. You can see that in the future projections (the purple blocks) there just isn’t that much room for “other” spending:
As a percentage of GDP this would mean that by 2019-2020 spending on public services would be at its lowest since the late 1930s. That would require either an unprecedented revolution in how these services are provided or sharp reductions in their provision.
The OBR seems, to put it politely, far from convinced:
The implied cuts in RDEL during the next Parliament would pose a significant challenge if they were confirmed as firm policy, one that would be all the greater if existing protections were maintained. But we do not believe that it would be appropriate for us to assume, ex ante, that these cuts would be inherently unachievable and make it our central forecast that this or a future Government would breach its stated spending limits if it chose and tried to implement them. But… we might need to include an ‘allowance for overspending’ in our forecasts, similar to the ‘allowance for shortfall’ that we currently incorporate to reflect likely underspending against DEL plans.
That is as close as the OBR will ever come to saying that these plans look completely unworkable. Indeed it as much admits this stating that it is “quite possible” that a future government “would adopt different policies”.
While there have been significant spending cuts in the current parliament, they are only roughly 40% of what are implied under the government’s plan. That means around 60% are set to come over the next five years.
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