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Failure looms for George Osborne

The Chancellor will be forced to face facts in his autumn statement — there’s no other way of plugging the £190bn hole in his Budget than chasing after “plan B”.

Among Conservatives, George Osborne is known as “the submarine” for his habit of surfacing only for set-piece events such as the Budget and retreating under water at the first sign of trouble (for similar reasons, Gordon Brown was nicknamed “Macavity”, after the cat who wasn’t there).

Unfortunately for the Chancellor, on those occasions when he does appear, it is invariably to deliver bad news. When Osborne presents his autumn statement to the House of Commons on 5 December, he will again be forced to announce that growth is lower than expected and borrowing higher.

In March, when the Office for Budget Responsibility (OBR), the independent fiscal watch­dog established by Osborne, last published forecasts, it predicted that Britain would avoid a double-dip recession and the economy would grow by 0.8 per cent this year. Yet, a month later, the UK returned to recession (the only G20 country, with the exception of Italy, to have done so) and went on to suffer a third consecutive quarter of contraction. Independent forecasters now expect the economy to shrink by 0.4 per cent this year (see bar chart below).

As a result, Osborne’s deficit reduction plan, which was premised on a steady recovery, has been thrown off course. The Chancellor is fond of boasting that he has reduced the deficit by a quarter (from £159bn in 2009-2010 to £119bn in 2011-2012) since taking office, but the disappearance of growth makes this trend unlikely to continue. Borrowing so far this year is 22 per cent (£10.6bn) higher than in the same period last year and forecasters expect the government to miss its deficit target for 2012 (£120bn) by as much as £30bn. In total, it is predicted that the coalition will borrow £190.8bn more than originally intended (see graph below). At the time of his emergency Budget in June 2010, Osborne declared that “unless we deal with our debts there will be no growth”. But he has learned that the reverse is true – unless you stimulate growth, you can’t deal with your debts.


Golden rule

The parlous state of the public finances makes it likely that Osborne will announce the abandonment of his golden debt rule in the autumn statement. The Chancellor’s “fiscal mandate” requires public-sector debt to be falling as a share of GDP by 2015-2016, an aim that appears increasingly unachievable. In March, the OBR forecast that debt would fall from 76.3 per cent in 2014-2015 to 76 per cent in 2015-2016, but the IMF has more recently predicted that it will rise from 78.8 per cent to 79.8 per cent.

Although Osborne could announce billions more in spending cuts and tax rises in an attempt to meet his target, even he recognises that it would be both politically and economically reckless to do so. Instead, he will partly accept the Keynesian argument that debt reduction must not be given priority over growth.

The governor of the Bank of England, Mervyn King, with whom Osborne has an unspoken alliance, has prepared the ground for the Chancellor by stating that it would be “acceptable” to abandon the target if the economy continues to struggle. But even though Osborne, an arch-pragmatist, accepts such logic, the decision will cause him no small pain. He will, indisputably, have failed on his own terms.

George Eaton is political editor of the New Statesman.

This article first appeared in the 08 October 2012 issue of the New Statesman, Conservative conference special

Photo: Getty Images
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No, IDS, welfare isn't a path to wealth. Quite the opposite, in fact

Far from being a lifestyle choice, welfare is all too often a struggle for survival.

Iain Duncan Smith really is the gift that keeps on giving. You get one bile-filled giftbag of small-minded, hypocritical nastiness and, just when you think it has no more pain to inflict, off comes another ghastly layer of wrapping paper and out oozes some more. He is a game of Pass the Parcel for people who hate humanity.
For reasons beyond current understanding, the Conservative party not only let him have his own department but set him loose on a stage at their conference, despite the fact that there was both a microphone and an audience and that people might hear and report on what he was going to say. It’s almost like they don’t care that the man in charge of the benefits system displays a fundamental - and, dare I say, deliberate - misunderstanding of what that system is for.
IDS took to the stage to tell the disabled people of Britain - or as he likes to think of us, the not “normal” people of Britain -  “We won’t lift you out of poverty by simply transferring taxpayers’ money to you. With our help, you’ll work your way out of poverty.” It really is fascinating that he was allowed to make such an important speech on Opposite Day.
Iain Duncan Smith is a man possessed by the concept of work. That’s why he put in so many hours and Universal Credit was such a roaring success. Work, when available and suitable and accessible, is a wonderful thing, but for those unable to access it, the welfare system is a crucial safety net that keeps them from becoming totally impoverished.
Benefits absolutely should be the route out of poverty. They are the essential buffer between people and penury. Iain Duncan Smith speaks as though there is a weekly rollover on them, building and building until claimants can skip into the kind of mansion he lives in. They are not that. They are a small stipend to keep body and soul together.
Benefits shouldn’t be a route to wealth and DWP cuts have ensured that, but the notion that we should leave people in poverty astounds me. The people who rely on benefits don’t see it as a quick buck, an easy income. We cannot be the kind of society who is content to leave people destitute because they are unable to work, through long-term illness or short-term job-seeking. Without benefits, people are literally starving. People don’t go to food banks because Waitrose are out of asparagus. They go because the government has snipped away at their benefits until they have become too poor to feed themselves.
The utter hypocrisy of telling disabled people to work themselves out of poverty while cutting Access to Work is so audacious as to be almost impressive. IDS suggests that suitable jobs for disabled workers are constantly popping out of the ground like daisies, despite the fact that his own government closed 36 Remploy factories. If he wants people to work their way out of poverty, he has make it very easy to find that work.
His speech was riddled with odious little snippets digging at those who rely on his department. No one is “simply transferring taxpayers’ money” to claimants, as though every Friday he sits down with his card reader to do some online banking, sneaking into people’s accounts and spiriting their cash away to the scrounging masses. Anyone who has come within ten feet of claiming benefits knows it is far from a simple process.
He is incredulous that if a doctor says you are too sick to work, you get signed off work, as though doctors are untrained apes that somehow gained access to a pen. This is only the latest absurd episode in DWP’s ongoing deep mistrust of the medical profession, whose knowledge of their own patients is often ignored in favour of a brief assessment by an outside agency. IDS implies it is yes-no question that GPs ask; you’re either well enough to work or signed off indefinitely to leech from the state. This is simply not true. GPs can recommend their patients for differing approaches for remaining in work, be it a phased return or adapted circumstances and they do tend to have the advantage over the DWP’s agency of having actually met their patient before.
I have read enough stories of the callous ineptitude of sanctions and cuts starving the people we are meant to be protecting. A robust welfare system is the sign of a society that cares for those in need. We need to provide accessible, suitable jobs for those who can work and accessible, suitable benefits for those who can’t. That truly would be a gift that keeps giving.