Why Britain is not Portugal

George Osborne is wrong to argue that Portugal’s woes make the case for his spending cuts.

Demonstrating once again that he is much better at politics than he is at economics, George Osborne has cited Portugal's request for an EU bailout as further evidence that those opposed to his excessive spending cuts are playing "Russian roulette" with Britain's national sovereignty.

"Today, of all days, we can see the risks that would face Britain if we were not dealing with our debts and paying off our national credit card. These risks are not imaginary," he said.

What the Chancellor refuses to acknowledge is that Britain, unlike Portugal, Greece and Ireland, can afford to meet its debts over a sustained period of time (even under his plans, debt will be 68.8 per cent of GDP in 2014-2015). As Duncan Weldon points out, the average maturity of UK government debt is currently around 14 years, while Portugal's is 6.8.

Indeed, the Barclays Capital Fiscal Vulnerability Index (see Table 3.1 of the IFS Green Budget), ranks the UK first for public debt duration and as joint first on the percentage of borrowing that is in domestic currency (leaving it less exposed to the foreign bond markets).

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Britain's large structural deficit means that its overall rating is worse, but even then we're ranked 32nd, next to Japan (31st) and the United States (30th), and above India (35), France (39), Poland (40), Spain (42) and Italy (51). What's more, Osborne's premature cuts and the resultant collapse in economic growth have prompted the Office for Budget Responsibility to revise its borrowing forecasts up by £44.5bn. The Chancellor may claim that Labour lacks a "credible deficit reduction plan" but, without growth, so does he.

There is, however, one big similarity between Portugal and the UK. They were both among just five EU countries to suffer negative growth in the final quarter of 2010 (the others were Greece, Ireland and Denmark).

This week's economic survey by the British Chambers of Commerce suggests that the situation may be even worse than thought. According to the BCC, the economy may have grown by just 0.1-0.2 per cent in the six months to March.

Osborne's fixation on deficit reduction, rather than growth, means that he deserves neither and will lose both.

UPDATE: The excellent Will Straw points out that the OECD's new report includes even more evidence that Britain is not Portugal.

George Eaton is political editor of the New Statesman.

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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

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

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