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.

Getty
Show Hide image

If Seumas Milne leaves Jeremy Corbyn, he'll do it on his own terms

The Corbynista comms chief has been keeping a diary. 

It’s been a departure long rumoured: Seumas Milne to leave post as Jeremy Corbyn’s director of communications and strategy to return to the Guardian.

With his loan deal set to expire on 20 October, speculation is mounting that he will quit the leader’s office. 

Although Milne is a key part of the set-up – at times of crisis, Corbyn likes to surround himself with long-time associates, of whom Milne is one – he has enemies within the inner circle as well. As I wrote at the start of the coup, there is a feeling among Corbyn’s allies in the trade unions and Momentum that the leader’s offfice “fucked the first year and had to be rescued”, with Milne taking much of the blame. 

Senior figures in Momentum are keen for him to be replaced, while the TSSA, whose general secretary, Manuel Cortes, is one of Corbyn’s most reliable allies, is said to be keen for their man Sam Tarry to take post in the leader’s office on a semi-permanent basis. (Tarry won the respect of many generally hostile journalists when he served as campaign chief on the Corbyn re-election bid.) There have already been personnel changes at the behest of Corbyn-allied trade unions, with a designated speechwriter being brought in.

But Milne has seen off the attempt to remove him, with one source saying his critics had been “outplayed, again” and that any new hires will be designed to bolster, rather than replace Milne as comms chief. 

Milne, however, has found the last year a trial. I am reliably informed that he has been keeping a diary and is keen for the full story of the year to come out. With his place secure, he could leave “with his head held high”, rather than being forced out by his enemies and made a scapegoat for failures elsewhere, as friends fear he has been. The contents of the diary would also allow him to return in triumph to The Guardian rather than slinking back. 

So whether he decides to remain in the Corbyn camp or walk away, the Milne effect on Team Corbyn is set to endure.

 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.