Osborne prepares to admit defeat on debt reduction

The Chancellor will abandon his debt rule to prevent even deeper cuts.

In his "emergency Budget" in June 2010, Osborne declared that "unless we deal with our debts there will be no growth". But as all Keynesians know, the reverse is true. Unless you stimulate growth, you can't deal with your debts. According to the latest independent forecasts, Osborne will be forced to borrow £174.9bn more than originally planned from 2012-16, a figure that is only likely to rise as growth remains anaemic or non-existent.

Indeed, so bad is the fiscal situation, that, as today's Times reports (£), Osborne is preparing to announce the abandonment of his golden debt rule in the Autumn Statement on 5 December. The rule, which forms the second part of his "fiscal mandate" (the first relates to the structural deficit, which the Chancellor aims to eliminate over a rolling five-year period), is designed to "ensure that debt is falling as a share of GDP by 2015-16". Based on the most recent set of forecasts from the Office for Budget Responsibility, published at the time of the Budget, debt will decline from 76.3 per cent in 2014-15 before dropping to 76 per cent in 2015-16. But since then, the economy has fallen back into recession, with borrowing already up by more than a quarter on last year. As a result, independent forecasters now say that Osborne will miss his target. The IMF, for instance, has forecast that debt will rise from 78.8 per cent of GDP in 2014-15 to 79.9 per cent in 2015-16.

In response, the Chancellor could, of course, announce billions more in tax rises and spending cuts. But that would only further reduce growth, meaning that he might miss his target anyway, and would hardly endear him to voters already bruised by austerity. Thus, as the Times reports, Osborne, with David Cameron's agreement, "is ready to take a political hit on missing the target rather than face the "nightmare" of further cuts."

For the Chancellor, the consequences could be grim. The abandonment of the debt rule would dismay his party's fiscal conservatives, and could trigger the loss of the UK's AAA credit rating, the metric by which he has set such stock. But it could also offer Osborne one final chance to redeem himself. Once he accepts that debt reduction should not be prioritised over growth, the menu of policy options expands accordingly. Indeed, a  well-sourced leader (£) in yesterday's Times suggested that the Chancellor was even considering a small stimulus. And why not? With the UK able to borrow at the lowest interest rates for 300 years, it is only Osborne's political pride that has prevented a change of course thus far. Even the IMF has said that a reduced pace of deficit reduction would not lead to a rise in UK bond yields. Freed from his fiscal straitjacket, Osborne would finally be liberated to pursue a policy that works.

Chancellor George Osborne leaves 11 Downing Street in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Theresa May could live to regret not putting Article 50 to a vote sooner

Today's Morning Call.

Theresa May will reveal her plan to Parliament, Downing Street has confirmed. They will seek to amend Labour's motion on Article 50 adding a note of support for the principle of triggering Article 50 by March 2017, in a bid to flush out the diehard Remainers.

Has the PM retreated under heavy fire or pulled off a clever gambit to take the wind out of Labour's sails while keeping her Brexit deal close to her chest? 

Well, as ever, you pays your money and you makes your choice. "May forced to reveal Brexit plan to head off Tory revolt" is the Guardian's splash. "PM caves in on plans for Brexit" is the i's take. "May goes into battle for Brexit" is the Telegraph's, while Ukip's Pravda aka the Express goes for "MPs to vote on EU exit today".

Who's right? Well, it's a bit of both. That the government has only conceded to reveal "a plan" might mean further banalities on a par with the PM's one-liner yesterday that she was seeking a "red white and blue Brexit" ie a special British deal. And they've been aided by a rare error by Labour's new star signing Keir Starmer. Hindsight is 20:20, but if he'd demanded a full-blown white paper the government would be in a trickier spot now. 

But make no mistake: the PM didn't want to be here. It's worth noting that if she had submitted Article 50 to a parliamentary vote at the start of the parliamentary year, when Labour's frontbench was still cobbled together from scotch-tape and Paul Flynn and the only opposition MP seemed to be Nicky Morgan, she'd have passed it by now - or, better still for the Tory party, she'd be in possession of a perfect excuse to reestablish the Conservative majority in the House of Lords. May's caution made her PM while her more reckless colleagues detonated - but she may have cause to regret her caution over the coming months and years.

PANNICK! AT THE SUPREME COURT

David Pannick, Gina Miller's barrister, has told the Supreme Court that it would be "quite extraordinary" if the government's case were upheld, as it would mean ministers could use prerogative powers to reduce a swathe of rights without parliamentary appeal. The case hinges on the question of whether or not triggering Article 50 represents a loss of rights, something only the legislature can do.  Jane Croft has the details in the FT 

SOMETHING OF A GAMBLE

Ministers are contemplating doing a deal with Nicola Sturgeon that would allow her to hold a second independence referendum, but only after Brexit is completed, Lindsay McIntosh reports in the Times. The right to hold a referendum is a reserved power. 

A BURKISH MOVE

Angela Merkel told a cheering crowd at the CDU conference that, where possible, the full-face veil should be banned in Germany. Although the remarks are being widely reported in the British press as a "U-Turn", Merkel has previously said the face veil is incompatible with integration and has called from them to be banned "where possible". In a boost for the Chancellor, Merkel was re-elected as party chairman with 89.5 per cent of the vote. Stefan Wagstyl has the story in the FT.

SOMEWHERE A CLOCK IS TICKING

Michael Barnier, the EU's chief Brexit negotiator, has reminded the United Kingdom that they will have just 15 to 18 months to negotiate the terms of exit when Article 50 is triggered, as the remaining time will be needed for the deal to secure legislative appeal.

LEN'S LAST STAND?

Len McCluskey has quit as general secretary of Unite in order to run for a third term, triggering a power struggle with big consequences for the Labour party. Though he starts as the frontrunner, he is more vulnerable now than he was in 2013. I write on his chances and possible opposition here.

AND NOW FOR SOMETHING COMPLETELY DIFFERENT

Emad asks if One Night Stand provides the most compelling account of sex and relationships in video games yet.

MUST READS

Theresa May is becoming adept at avoiding defeats says George

Liv Constable-Maxwell on what the Supreme Court protesters want

Theresa May risks becoming an accidental Europe wrecker, says Rafael Behr

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Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.