Osborne's deficit reduction plan remains off track

Borrowing in August reached a record high of £14.41bn.

While the latest borrowing figures aren't quite as bad as expected, they still make grim reading for George Osborne. The August deficit was £14.41bn, the largest figure on record for that month and further evidence that the Chancellor's deficit reduction plan has stalled. Borrowing so far this year (April-August) is £59bn, 22% (£10.6bn) higher than in the same period last year.

The Treasury derived some comfort from the fact that total borrowing for last year (2011/12) was revised down from £126bn to £119.3bn (largely due to an underspend by local government) but this trend almost certainly won't continue. Capital Economics, for instance, expects the government to miss its deficit target for this year (£119.9bn) by £30bn. For the first time since Osborne entered No. 11, borrowing is set rise in annual terms, a significant blow to his political narrative of "balancing the books".

Worse, the parlous state of the public finances means that Osborne will likely be forced to announce the abandonment of his golden debt rule when he delivers his autumn statement on 5 December. Mervyn King, who has a long-standing alliance with Osborne, told Channel 4 News last night that slow growth (or rather, no growth) meant it would be "acceptable" for Osborne to miss the target, which requires public sector debt to be falling as a share of GDP by 2015-16.

While even Osborne recognises that it would be economically reckless to impose deeper cuts in an attempt to meet the rule, its abandonment will cause him much political pain - he will, indisputably, have failed on his own terms.

George Osborne is expected to miss his deficit target for this year by £30bn. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Brexit is teaching the UK that it needs immigrants

Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past.

Why did the UK vote to leave the EU? For conservatives, Brexit was about regaining parliamentary sovereignty. For socialists it was about escaping the single market. For still more it was a chance to punish David Cameron and George Osborne. But supreme among the causes was the desire to reduce immigration.

For years, as the government repeatedly missed its target to limit net migration to "tens of thousands", the EU provided a convenient scapegoat. The free movement of people allegedly made this ambition unachievable (even as non-European migration oustripped that from the continent). When Cameron, the author of the target, was later forced to argue that the price of leaving the EU was nevertheless too great, voters were unsurprisingly unconvinced.

But though the Leave campaign vowed to gain "control" of immigration, it was careful never to set a formal target. As many of its senior figures knew, reducing net migration to "tens of thousands" a year would come at an economic price (immigrants make a net fiscal contribution of £7bn a year). An OBR study found that with zero net migration, public sector debt would rise to 145 per cent of GDP by 2062-63, while with high net migration it would fall to 73 per cent. For the UK, with its poor productivity and sub-par infrastructure, immigration has long been an economic boon. 

When Theresa May became Prime Minister, some cabinet members hoped that she would abolish the net migration target in a "Nixon goes to China" moment. But rather than retreating, the former Home Secretary doubled down. She regards the target as essential on both political and policy grounds (and has rejected pleas to exempt foreign students). But though the same goal endures, Brexit is forcing ministers to reveal a rarely spoken truth: Britain needs immigrants.

Those who boasted during the referendum of their desire to reduce the number of newcomers have been forced to qualify their remarks. On last night's Question Time, Brexit secretary David Davis conceded that immigration woud not invariably fall following Brexit. "I cannot imagine that the policy will be anything other than that which is in the national interest, which means that from time to time we’ll need more, from time to time we’ll need less migrants."

Though Davis insisted that the government would eventually meet its "tens of thousands" target (while sounding rather unconvinced), he added: "The simple truth is that we have to manage this problem. You’ve got industry dependent on migrants. You’ve got social welfare, the national health service. You have to make sure they continue to work."

As my colleague Julia Rampen has charted, Davis's colleagues have inserted similar caveats. Andrea Leadsom, the Environment Secretary, who warned during the referendum that EU immigration could “overwhelm” Britain, has told farmers that she recognises “how important seasonal labour from the EU is to the everyday running of your businesses”. Others, such as the Health Secretary, Jeremy Hunt, the Business Secretary, Greg Clark, and the Communities Secretary, Sajid Javid, have issued similar guarantees to employers. Brexit is fuelling immigration nimbyism: “Fewer migrants, please, but not in my sector.”

The UK’s vote to leave the EU – and May’s decision to pursue a "hard Brexit" – has deprived the government of a convenient alibi for high immigration. Finally forced to confront the economic consequences of low migration, ministers are abandoning the easy rhetoric of the past. Brexit may have been caused by the supposed costs of immigration but it is becoming an education in its benefits.

George Eaton is political editor of the New Statesman.