Since May of this year, I’ve been writing about one of the most important political questions in town: what will George Osborne do if the Office for Budget Responsibility raises its forecasts for economic growth? After all, the domino effect of higher growth forecasts is higher-than-expected tax revenues. The Chancellor could have some money to play with as the election looms.
To this question of what Osborne would do with this extra revenue – cut taxes elsewhere, perhaps, or cut the deficit – I’ve since added the question of when he would do it. As I wrote in a post in August, if you’ll forgive the self-quotaion:
“If Osborne does choose to splurge, will we see signs of that in the forthcoming Autumn Statement? Or will he hold back until closer to 2015, either in case the public finances worsen again, or simply for maximum electoral gain?”
I mention this now is because we may have an answer. Yesterday, Osborne not only revealed that the Autumn Statement is due on 4 December, he also suggested that it will prioritise the deficit ahead of tax-cuts-you-can-vote-for. As today’s Financial Times reports:
“The UK’s economic recovery will not provide a pot of money for tax sweeteners in the Autumn Statement, which is to be made on 4 December, George Osborne told journalists, saying he was ‘far from feeling the job is done…
…His position is part of the Conservative party’s new political strategy of arguing that the economy is not ‘out of the woods’ yet, in an effort to dissuade voters from supporting Labour.”
This is largely unsurprising. Osborne’s reluctance to turn away from the one true path of deficit reduction fits in with the tale of two trajectories that I described recently: he won’t want people to think that we’ve already reached the Land of Plenty, where Labour can be put back in charge. And it also protects the Chancellor from a downwards swing in Britain’s economic fortunes. He’d look incredibly stupid if – to adapt a well-worn metaphor – he stopped fixing the roof because the sun started to shine.
But none of this undoes the possibility of growth-backed tax cuts in future. As I said before, Osborne may want them to happen closer to the election anyway – for maximum electoral gain.