Is Osborne borrowing more or less?

The Chancellor is set to borrow more than Gordon Brown planned.

Is George Osborne borrowing more or less? You won't find a simple answer in today's papers. The Guardian reports that "Britain will borrow £21.5bn less than previously forecast" but the FT warns that "the black hole in UK public finances has increased by almost £30bn." Elsewhere, Reuters reports that the Office for Budget Responsibility's forecasts are expected to show a "borrowing overshoot of at least 86 billion pounds over four years." Who's right? The answer is that they all are.

In his autumn statement, at 12:30pm, Osborne will announce that Britain's record low bond yields have saved the taxpayer £21.5bn, the so-called "safe haven dividend". Money that would have been spent on financing the national debt can now be spent on enterprise schemes, free childcare, business tax breaks and so on.

But unfortunately for the Chancellor, that's not the end of story. Owing to lower growth and higher unemployment (which leads to a larger welfare bill), public sector net borrowing is expected to be around £86bn higher (the Reuters figure) than forecast at the time of the Budget in March. Even before today, Osborne was forecast to borrow £46bn more than expected. When the OBR publishes its latest forecasts today, that figure could rise to an enormous £132bn (£46bn + £86bn), taking Osborne's total borrowing over that planned by Alistair Darling. The Brown government was forecast to borrow £127bn in 2011-12 and £106bn in 2012-13. Osborne is expected to borrow £129bn ths year (up from £122bn) and £117bn next year (up from £101bn). Labour's smart attack line is that while the Chancellor is borrowing to meet the cost of high unemployment, it would have borrowed to fund growth.

Then there's the structural deficit, the "black hole" the FT refers to. The structural deficit - the part of the deficit that remains even after growth returns - is now forecast to be £30bn bigger. This is because the output gap - the difference between actual and potential growth - is smaller than previously thought. In other words, the economy is capable of less growth than initially forecast. This can't be blamed on Osborne's policies and, worryingly for messrs Balls and Miliband, has implications for Labour's own deficit reduction plan. It also means that the Chancellor is almost certain to miss his self-imposed target of eliminating the structural deficit before the next election. However, he is still likely to meet his formal fiscal mandate - to eliminate the structural deficit over a rolling five-year period. For example, from today, he has until 2016-17 to eliminate the deficit, from next year, he'll have until 2017-18. But meeting this target means extending austerity into the next parliament. A structural deficit can only be eliminated by spending cuts and tax rises, so Osborne will go into the next election warning of further pain to come.

The Chancellor's pledge to eliminate the structural deficit in one parliament was based on a political timetable, not an economic one. By 2015, Osborne envisaged that the Tories would be able to boast that they had cleaned up "the mess" left by Labour - a powerful political narrative - and offer cuts in personal taxation. But, as the grim figures above show, this is now a distant dream.

George Eaton is political editor of the New Statesman.

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Erdogan’s purge was too big and too organised to be a mere reaction to the failed coup

There is a specific word for the melancholy of Istanbul. The city is suffering a mighty bout of something like hüzün at the moment. 

Even at the worst of times Istanbul is a beautiful city, and the Bosphorus is a remarkable stretch of sea. Turks get very irritated if you call it a river. They are right. The Bosphorus has a life and energy that a river could never equal. Spend five minutes watching the Bosphorus and you can understand why Orhan Pamuk, Turkey’s Nobel laureate for literature, became fixated by it as he grew up, tracking the movements of the ocean-going vessels, the warships and the freighters as they steamed between Asia and Europe.

I went to an Ottoman palace on the Asian side of the Bosphorus, waiting to interview the former prime minister Ahmet Davu­toglu. He was pushed out of office two months ago by President Recep Tayyip Erdogan when he appeared to be too wedded to the clauses in the Turkish constitution which say that the prime minister is the head of government and the president is a ceremonial head of state. Erdogan was happy with that when he was prime minister. But now he’s president, he wants to change the constitution. If Erdogan can win the vote in parliament he will, in effect, be rubber-stamping the reality he has created since he became president. In the days since the attempted coup, no one has had any doubt about who is the power in the land.

 

City of melancholy

The view from the Ottoman palace was magnificent. Beneath a luscious, pine-shaded garden an oil tanker plied its way towards the Black Sea. Small ferries dodged across the sea lanes. It was not, I hasten to add, Davutoglu’s private residence. It had just been borrowed, for the backdrop. But it reminded a Turkish friend of something she had heard once from the AKP, Erdogan’s ruling party: that they would not rest until they were living in the apartments with balconies and gardens overlooking the Bosphorus that had always been the preserve of the secular elite they wanted to replace.

Pamuk also writes about hüzün, the melancholy that afflicts the citizens of Istanbul. It comes, he says, from the city’s history and its decline, the foghorns on the Bosphorus, from tumbledown walls that have been ruins since the fall of the Byzantine empire, unemployed men in tea houses, covered women waiting for buses that never come, pelting rain and dark evenings: the city’s whole fabric and all the lives within it. “My starting point,” Pamuk wrote, “was the emotion that a child might feel while looking through a steamy window.”

Istanbul is suffering a mighty bout of something like hüzün at the moment. In Pamuk’s work the citizens of Istanbul take a perverse pride in hüzün. No one in Istanbul, or elsewhere in Turkey, can draw comfort from what is happening now. Erdogan’s opponents wonder what kind of future they can have in his Turkey. I think I sensed it, too, in the triumphalist crowds of Erdogan supporters that have been gathering day after day since the coup was defeated.

 

Down with the generals

Erdogan’s opponents are not downcast because the coup failed; a big reason why it did was that it had no public support. Turks know way too much about the authoritarian ways of military rule to want it back. The melancholy is because Erdogan is using the coup to entrench himself even more deeply in power. The purge looks too far-reaching, too organised and too big to have been a quick reaction to the attempt on his power. Instead it seems to be a plan that was waiting to be used.

Turkey is a deeply unhappy country. It is hard to imagine now, but when the Arab uprisings happened in 2011 it seemed to be a model for the Middle East. It had elections and an economy that worked and grew. When I asked Davutoglu around that time whether there would be a new Ottoman sphere of influence for the 21st century, he smiled modestly, denied any such ambition and went on to explain that the 2011 uprisings were the true succession to the Ottoman empire. A century of European, and then American, domination was ending. It had been a false start in Middle Eastern history. Now it was back on track. The people of the region were deciding their futures, and perhaps Turkey would have a role, almost like a big brother.

Turkey’s position – straddling east and west, facing Europe and Asia – is the key to its history and its future. It could be, should be, a rock of stability in a desperately un­stable part of the world. But it isn’t, and that is a problem for all of us.

 

Contagion of war

The coup did not come out of a clear sky. Turkey was in deep crisis before the attempt was made. Part of the problem has come from Erdogan’s divisive policies. He has led the AKP to successive election victories since it first won in 2002. But the policies of his governments have not been inclusive. As long as his supporters are happy, the president seems unconcerned about the resentment and opposition he is generating on the other side of politics.

Perhaps that was inevitable. His mission, as a political Islamist, was to change the country, to end the power of secular elites, including the army, which had been dominant since Mustafa Kemal Atatürk created modern Turkey after the collapse of the Ottoman empire. And there is also the influence of chaos and war in the Middle East. Turkey has borders with Iraq and Syria, and is deeply involved in their wars. The borders do not stop the contagion of violence. Hundreds of people have died in the past year in bomb attacks in Turkish cities, some carried out by the jihadists of so-called Islamic State, and some sent by Kurdish separatists working under the PKK.

It is a horrible mix. Erdogan might be able to deal with it better if he had used the attempted coup to try to unite Turkey. All the parliamentary parties condemned it. But instead, he has turned the power of the state against his opponents. More rough times lie ahead.

Jeremy Bowen is the BBC’s Middle East editor. He tweets @bowenbbc

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue