Yesterday’s budget told us a few things about what the priorities of a future Conservative government would be: Bringing down the deficit while avoiding being accused of bringing down the public sector with it. One thing it manifestly failed to do, however, was tell us how all this was going to be achieved.
The headlines in today’s newspapers are calling it the “sunshine budget” after Chancellor George Osborne told the House of Commons that he was fixing Britain’s roof as the first rays of sun were shining through. But the government’s debt reduction plans still have a gaping hole — it’s not at all clear which departments are actually going to take a hit.
Despite Osborne’s protestations, most people were expecting a budget packed full of gimmicks and giveaways as the election looms large over Westminster. We certainly got a few of them (a 1p cut to beer duty and more help to first-time house buyers with a Help to Buy ISA scheme), but the big surprise was that the Chancellor saved the biggest giveaway for the 2020 General Election.
In a move designed to undercut claims that he was cutting back total government spending as a share of GDP to levels not seen since the 1930s, he found £20 billion more to spend on public services in the last year of the next parliament. And this is what it looks like in chart form:
This means that instead of reducing total spending to a post-war low over the next five years, the Conservatives only plan to reduce it to levels last seen in 1964, according to Bloomberg’s Jamie Murray. But where did this giveaway come from?
Well, in part the increased spending reflects lower borrowing costs on government borrowing than was expected in December and lower inflation meaning that the cost of inflation-linked benefits are set to rise at a slower pace. Mostly, however, it reflects the Chancellor bringing forward the pain of cuts into the early years of the next parliament so that he could afford a giveaway at the end.
As Robert Chote, head of the government’s budget watchdog the Office for Budget Responsibility (OBR), said yesterday (emphasis added):
“The real cut in public services spending planned for the coming year is slightly smaller than the likely average for the current Parliament. But
the squeeze then becomes much more severe than anything we have
seen to date in 2016-17 and 2017-18.”
This roller-coaster ride may make good politics, but it’s awkward economics. In order to justify its plans, the government produces a so-called “spending assumption” for years where it does not produce detailed plans.
Changes to these assumptions can have large impacts on the OBR’s forecasts but, in the absence of any details about where the cuts or additional spending are likely to be, it is almost impossible to scrutinise the feasibility of the plans.
As a consequence, we get vague charts like the one below. The purple bars show the new path of departmental spending over the next parliament, but do not list how each department, like education and health, will be affected:
“The elephant in the room is that all parties have pencilled in significant cuts in the next parliament that dwarf the measures they are likely to announce, without specifying how they will be achieved. As the Resolution Foundation cleverly put it, there’s a candour deficit as well as a fiscal one,” writes Bloomberg’s Murray.
Actually, I would go further. Not knowing where the axe will fall prevents voters from making an informed choice as to which party best reflects their preferences. In other words, it’s a democratic deficit enabled by all parties.
As we noted yesterday, the Chancellor effectively announced a reduced imaginary future budget surplus through front-loading undefined future cuts by an unlikely future government. In other words, we learned next to nothing yesterday about what’s actually going to happen after May.
This is the real deficit that needs closing, and the costs for those who rely on the functions of the state could be extraordinarily high.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.