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OSBORNE WITH BLACKBERRY

Yesterday, I wrote a post about Fraser Nelson’s recent criticism of George Osborne: which is, in part, that the Chancellor has recently “switched metrics” to misleadingly claim that the Government has reduced the deficit by half. I was trying to explain Fraser’s point, offer a couple of counter-arguments to it, and set out my own broader qualms about the Government’s deficit reduction plan.

Soon after that was published, Team Osborne got in touch to explain themselves. According to them, Fraser is wrong about this. They say they haven’t switched metrics at all.

So why have they gone from claiming, before the Autumn Statement, that the deficit had been cut by a third to claiming, after the Autumn Statement, that it has been halved? Fraser put this down to them shifting from one measure of the deficit (public sector net borrowing, recorded in £billions) to another measure of the deficit (the deficit on the cyclically-adjusted current budget, recorded as a percentage of GDP). But the official explanation is that they have been referring to one measure of the deficit all along: public sector net borrowing as a percentage of GDP. They have simply started using the figure for 2014-15 instead of 2013-14, now that it’s that much closer to the end of the financial year.

Here’s a graph to clarify what they mean. The red bars are the figures from the last Budget, when they said “a third”. The green ones are the latest figures from the Autumn Statement, when they starting saying “halved”.

141219 PSNB graph

I’m not normally one to cut politicians any slack, but on the face of it this seems okay. Were I to write yesterday’s post again, I’d certainly change the third of its ten points to reflect this explanation. The rest of my points, many of which went beyond this specific argument, still stand.

But, before I start looking too soft, I should say that Team Osborne aren’t left blameless by all this. The main reason why there’s confusion about which measure of the deficit they’re using at any one time is because they’ve allowed that confusion to fester. Here’s a scattering of bullet-points on that theme:

  • The Prime Minister’s spokesman was recently asked “Why has the government switched from talking about the deficit using one set of metrics to talking about it using another?” But he ummed and ahhed in response, and couldn’t give the denial that was given to me yesterday. Downing Street should be much clearer about these things.
  • As I said yesterday, and as Fraser has emphasised, expressing the deficit as a percentage of GDP is problematic in some ways. There are plenty of good reasons for the Office for Budget Responsibility and other economists to use it – such as that it captures Britain’s capacity to reduce its borrowings – but politicians should be careful when dropping it into their speeches. “We have halved the deficit” will be taken, by many people, to mean something different from “we have halved the deficit as a share of another thing”. In purely cash terms, the deficit has still only gone down by about a third.
  • Osborne may be referring to “public sector net borrowing as a percentage of GDP” when he talks about cutting the deficit “in half” or “by a third”, but he uses other measures of the deficit at other times. His primary fiscal target, for instance, is judged according to the “cyclically-adjusted current budget deficit as a percentage of GDP”, aka the “structural deficit”. Yet he still just calls this “deficit reduction”.

And all that’s before we consider the various revisions, additions and subtractions that have been made to the borrowing figures. They’re a murky old business, the public finances.

32 comments for: Team Osborne’s answer to Fraser Nelson on the deficit

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