Osborne set to miss deficit targets

Sluggish growth means that total borrowing will still be 3.6 per cent in 2015-16.

Whatever voting system the next election is fought under, the result is likely to be determined by the state of the economy. With this in mind, the latest forecasts don't give George Osborne much cause for optimism. The April review from the National Institute for Economic and Social Research (NIESR) suggests that growth will be significantly lower than expected and that, as a result, Osborne will miss his target to balance the structural deficit by 2015-16 (the OBR expects a surplus of 0.8 per cent). The NIESR predicts that total borrowing will be 3.6 per cent of GDP in 2015-16, well above the OBR forecast of 1.5 per cent.

It notes:

"The weak recovery will feed through to lower tax revenues. That will mean that even if the spending plans are met over the next four years, public sector net borrowing will fall only to 3.6 per cent of GDP in 2015-16 rather than the 1.5 per cent projected by the Office for Budget Responsibility. Likewise, the current budget will then run a deficit of 2.2 per cent of GDP compared with the OBR's surplus of 0.2 per cent. We do not expect the government to meet its target to balance the cyclically-adjusted current budget by 2015-16."

As Osborne's critics have persistently warned, anaemic growth means a slower pace of deficit reduction. At the Budget, the OBR downgraded its growth forecast for 2011 to 1.7 per cent (down from 2.1 per cent in November, 2.3 per cent following the Emergency Budget and 2.6 per cent in June), but the NIESR is predicting growth of just 1.4 per cent for this year. Given that the economy grew by just 0.5 per cent in the first quarter of this year, significantly below the official forecast of 0.8 per cent, the smart money is on the OBR having to downgrade its growth forecast for the fourth time.

The political upshot of all this is that Osborne will have less room to fund a pre-election giveaway in 2015. The Chancellor pushed hard for a five-year term during the coalition negotiations in the belief that this would leave the economy with enough time to recover from his austerity measures. But it looks like his gamble may not pay off.

George Eaton is political editor of the New Statesman.

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The big problem for the NHS? Local government cuts

Even a U-Turn on planned cuts to the service itself will still leave the NHS under heavy pressure. 

38Degrees has uncovered a series of grisly plans for the NHS over the coming years. Among the highlights: severe cuts to frontline services at the Midland Metropolitan Hospital, including but limited to the closure of its Accident and Emergency department. Elsewhere, one of three hospitals in Leicester, Leicestershire and Rutland are to be shuttered, while there will be cuts to acute services in Suffolk and North East Essex.

These cuts come despite an additional £8bn annual cash injection into the NHS, characterised as the bare minimum needed by Simon Stevens, the head of NHS England.

The cuts are outlined in draft sustainability and transformation plans (STP) that will be approved in October before kicking off a period of wider consultation.

The problem for the NHS is twofold: although its funding remains ringfenced, healthcare inflation means that in reality, the health service requires above-inflation increases to stand still. But the second, bigger problem aren’t cuts to the NHS but to the rest of government spending, particularly local government cuts.

That has seen more pressure on hospital beds as outpatients who require further non-emergency care have nowhere to go, increasing lifestyle problems as cash-strapped councils either close or increase prices at subsidised local authority gyms, build on green space to make the best out of Britain’s booming property market, and cut other corners to manage the growing backlog of devolved cuts.

All of which means even a bigger supply of cash for the NHS than the £8bn promised at the last election – even the bonanza pledged by Vote Leave in the referendum, in fact – will still find itself disappearing down the cracks left by cuts elsewhere. 

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