Obama refuses to endorse Cameron’s deficit plan

US president emphasises the need for investment and says that “every country is different”.

The Tories were desperate for Barack Obama to endorse the coalition's deficit reduction plan, but at today's press conference he didn't even come close. In response to a question on the subject from ITV's Tom Bradby, the US president emphasised that "every country is different" and praised the way that "concerted action" by the UK and the US had "yanked the world economy out of recession" – an implicit endorsement of the last Labour government's fiscal stimulus.

Obama, who noted in his introductory remarks that the pair come from "different political traditions", went on to stress the need to sustain investment in "education, science, technology and infrastructure". For the US president, unlike the coalition, economic growth is a precondition of deficit reduction, not a hoped-for outcome.

It was only towards the end (Obama's answers were incredibly long-winded) that he made a token reference to the need for governments to "live within their means" before adding that the "sequencing and pace" of deficit reduction would be different in each country. It wasn't what Cameron and George Osborne wanted to hear.

The irony is that there are some significant similarities between Obama's deficit reduction plan and the coalition's. As I noted in a recent Data Hound column, under the US president's plan, public-sector borrowing will fall from 10.9 per cent of GDP this year to 3.3 per cent in 2016. The coalition aims to reduce borrowing from 9.9 per cent of GDP this year to 1.5 per cent in 2016.

Thus, although the total fiscal consolidation planned by Osborne remains the largest, the difference is not as great as some imply. In addition, Obama plans to achieve three-quarters of the US deficit reduction through spending cuts, including lower debt interest payments, and the rest through tax rises, in a ratio similar to the coalition's 73:27 split.

But the crucial difference is that while the US economy has grown by 1.2 per cent in the past six months, the UK economy has flatlined. The strength of the US recovery means that Obama can afford to reduce the deficit without fatally weakening growth. The same, alas, cannot be said of Osborne's Britain.

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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