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Osborne's £5bn plan is too little, too late

A programme funded by cuts elsewhere is an insufficient stimulus.

It's easy now to forget that George Osborne scrapped the pre-Budget report (introduced by Gordon Brown in 1997) in the belief that major decisions on tax and spending should be reserved for the Budget itself. The new slimmed-down autumn statement was designed to include little more than the OBR's latest forecasts on growth, borrowing and jobs. But confronted by a renewed economic crisis, Osborne has turned it into a second Budget in all but name.

Aware that the OBR's gloomy forecasts will dominate the news on Tuesday, the Chancellor has got his retaliation in early. After announcing up to £40bn of credit easing at the weekend, today's papers report that Osborne has found an extra £5bn for capital projects including road, rail and broadband infrastructure.

So, since ministers have repeatedly pledged not to a spend a penny more, where is the money coming from? In part, from lower than projected departmental spending and higher corporate tax receipts, but also through a planned freeze on working tax credits. Significantly, the extra £5bn does not effect Osborne's pledge to eliminate the structural deficit, which is based on current not capital spending. Indeed, the squeeze on current spending will help the Chancellor to meet that target within the next five years (the coalition's fiscal mandate). But it's still a significant U-turn by him. At the time of the Lib Dem conference when some ministers were agitating for an extra £5bn of capital spending the Treasury simply replied: "we have our spending plans and we are sticking to them". If it's not Plan B (Osborne has not and will not change course on the deficit), it's still some way from Plan A.

But is it too little, too late? Almost certainly yes. The decision to fund the project through savings elsewhere means that there will be no net increase in demand, little new stimulus. With unemployment at 2.62m and growth almost non-existent, Osborne needed something special. This isn't it.