Many said it could not be done (indeed, it seems that even the Treasury has been taken by surprise) but it’s now official: the UK has, at long last, eliminated the deficit in the current Budget. The day-to-day finances of the state, not including what’s deemed capital investment, are now running a surplus.
As the FT reports, this marks the fulfilment of a goal set by George Osborne back in 2010, when the current deficit stood at £100 billion. It’s true that this is two years behind Osborne’s original target date, and therefore a lot later than many Conservatives might have wanted, but the scale of the achievement still should not be ignored. The last time the British state’s finances achieved a current surplus was almost 16 years ago. Readers could be forgiven for allowing themselves a fairly hearty round of the words “Despite Brexit”.
It’s remarkable, really, that the Government has not made more of the news. If Treasury officials failed to spot it coming, that underlines the degree to which deficit reduction has gone out of fashion as a topical issue. But nonetheless, after years of being told by all and sundry that austerity was pointless, that controlling spending would kill growth, that more borrowing was required not less, that deficits were permanent and inevitable for a modern state, and all that nonsense, here is some significant evidence that the job is in fact getting done. The prospect of a near-permanent twilight state of austerity is unattractive to voters who were willing to accept tough times in order to achieve a national goal – this news suggests that such a state can be avoided, and the sacrifice is paying off at long last. That matters to the nation, even though the accumulated debt is of course still there to address, and should be shouted from the rooftops.
The surprise nature of the news is also yet another reminder that the Treasury struggles to accurately forecast what is going to happen in the British economy. It is mere months since OBR and Treasury forecasters were downgrading everything, and yet here we are with another unexpected over-performance. Caveat Remainor, as Jacob Rees-Mogg wouldn’t say, because ‘Remainor’ isn’t a real Latin word and I just made it up.
Predictably, the immediate response in some quarters has been to demand that the Chancellor start spending the extra money – indeed, Chris Giles, who broke the news, has written an article urging exactly that.
On the Tory benches there are two groups, only partially overlapping, which might back that view.
There are those MPs who feel that the electorate have simply had enough of fiscal responsibility, who have tired of getting petitions and letters and protests about the funding for x service or y benefit. There’s a reasonable case to say that the election disappointment was in part due to Labour’s success in pivoting the campaign off Brexit and onto the question of austerity, and various Conservative MPs have now lost their appetite for scorning magic money trees or demanding that the public sector must trim the fat. Their shift in position is as much psychological as anything else – they detect a change in feeling among their voters, and their own experiences have ground down their fiscal discipline.
Then there are those who are in search of a Brexit dividend – prominent Cabinet ministers who used the terms ‘£350 million’ and ‘NHS’ in close proximity during the referendum, for example. They seek an opportunity to point to new, additional spending on the health service in particular, for obvious reasons.
Those two tendencies are potentially quite influential if combined, though ultimately the decision of what to do next sits with the Chancellor. It would be a mistake to simply splash this cash in the hope of some short-term political dividend. He should stick to his plan to use the Spring statement as an update on economic and fiscal performance, and resist any pressure to start pulling costly rabbits out of hats. Deficit reduction has always been a means to an end, and the end is getting the country out from under the weight of the national debt, first and foremost.
The last eight years of tough times and political battles were not fought simply to start dishing out gimmicks, the multi-billion pound press releases beloved of previous Chancellors. No-one will thank the Government if, at the first sign of surplus, it slips back into the bad old ways of spending money we don’t have. Discipline got us this far, and greater discipline would arguably have got us here on schedule. Hammond should hold the course.