politics? Right now? It’s just the disquiet before the storm. I mean, the froth
and fury currently whirling around the party conferences and Andrew Mitchell is
but a prelude to the main event: George Osborne’s Autumn Statement on 5th December.
That is when we shall discover whether the Chancellor has any more ideas for
encouraging growth. That is when it might be confirmed that he’s set to break
one of his two fiscal rules. That is when we will experience hurricane-force turbulence.
fiscal rule under question is, as we know, Mr
Osborne’s “supplementary” one, to have our national debt growing no faster than
the economy by 2015. And last week provided more evidence that it will
eventually tumble. The latest official figures had public borrowing in August
this year as high as it was in August last year, at £14.4 billion. Overall borrowing
for this fiscal year (when distortive effects to do with Royal Mail pensions
are discounted) could even surpass last year’s total. As Robert Burns didn’t
quite put it, things gang aft agley when the economy stops growing.
was, admittedly, some encouraging news woven into those official numbers. The
borrowing total for the last fiscal year has been revised downwards, such that
the Coalition managed to cut the deficit by around a quarter in its first two
years of existence, and … so on and so on. But although we can pore over the numbers
until our minds bleed, there is increasingly only one lesson to be learnt from
them: that there are few certainties when it comes to the public finances. They
are, in significant part, a hash of revisions, counter-revisions, overshoots
and undershoots. We need only look at the Office for Budget Responsibility’s
fluctuating forecasts to realise that.
uncertainty should have been obvious to our politicians after 2008, when a
gigantic Black Swan crash-landed on the City and destroyed heaps of tax revenue
in the process. But it might have been obvious before then, too. If you compare
the actual amounts borrowed in the five years to 2007 with the original
forecasts made in Gordon Brown’s Budgets — as I once did, during my previous
life as a researcher — then you’ll see that New Labour exceeded their
expectations by over £100 billion. That may have been down to rampant spending
rather than sudden economic shock, but the lesson persists: the public finances
have a habit of veering off course.
yet, as simple as this lesson is, it has been neglected during this Parliament.
By encoding his fiscal rules into the Budget, Mr Osborne has staked a lot of
political capital — his own, as well as the government’s — on the idea that the
public finances can be controlled. And it wasn’t just the Chancellor: Labour’s election
manifesto contained a pledge that “over the next Parliament the structural
deficit will be cut by more than two thirds”. This self-assured language belies
what would have been very different results. According to the Institute for
Fiscal Studies’ estimates, a Labour government would have borrowed around £50
billion more than the Coalition by 2017, and the debt would be £200 billion
Osborne would probably say that he had to devise his fiscal rules for the sake
of the country. The markets, he’d point out, needed persuading that this
Government would be suitably tough on the deficit. And the credit-rating
agencies had made it a condition of our continuing triple-A rating that the
debt is put on a downwards trajectory by the middle of this decade.
while we can sympathise with Mr Osborne here, there are misplaced ideas about
control, and who exerts it, in these arguments too. And they are ideas that
people such as me bought into. I would, for instance, be much prouder of an
article that I wrote last year — warning
that the Chancellor could break his debt rule — were if not for one detail: I implied
that the credit-rating agencies could also cast Britain into an economic
“oblivion”. Yet we have since seen that a downgrade means “oblivion” for very few of the
countries it afflicts. When the whole world is dysfunctional, investors aren’t as
eager to fly from one territory into another. They and their money stay put.
of this is to say that the Treasury’s five-year plans are pointless. They
patently make a difference, and can even by useful. A sufficiently detailed
Spending Review now, for example, would give the civil service time to prepare
for cuts after the election. It would make those cuts more likely to happen.
politicians should also be quicker to slap health warnings all over the Budget
box. They need to make it clear that spending cuts are often little more than
aspirations, which may or may not be met by Whitehall’s bean-counters. They
need to be less confident about tax revenue, predicated as it is on economic
growth and various unknowable dynamic effects. And, above all, they must be
sceptical of the borrowing forecasts that depend on all of the above. The
general attitude should be that suggested by those “fan charts”
produced by the OBR, the IFS and others: an expectation that the unexpected can
happen over time, and that the Government will have to rethink its position.
the end, the truth behind all the hype and numbers is that it’s what individuals
actually do that matters. The choices made by investors, the number of people
setting up small businesses; these factors, and a thousand others, deserve as
much attention as the latest fiscal dictates from central office. And hopefully
George Osborne’s experience will help imprint this lesson on our collective
mind. After all, who’d want to rely on grand fiscal forecasts now?