Osborne will need even-bigger cuts to stick to his plan

The Chancellor must find £48bn in extra spending cuts or tax rises to meet his main deficit target.

The Autumn Statement is now just over three weeks away and a sense of déjà vu hangs over the scene. In the run up to the same event last year it was plain that poor economic performance meant that the Office for Budget Responsibility (OBR) would be the bearer of bad news for the Chancellor. And so it is again.

After a grotty economic performance in 2011, last year’s Autumn Statement was always going to deliver bad news. The Chancellor announced the need for a £15bn reduction in overall spending by 2016-17 in order to meet the government’s fiscal mandate of eliminating the structural deficit in five years.

But that wasn’t the whole story. Much social security spending is driven by things beyond the government’s control: rising rents push up the housing benefit bill, and retiring baby boomers raise the overall cost of the basic state pension. So to constrain overall spending in the face of a rising benefits bill, the Treasury was implicitly seeking a further £11bn of savings. In total, the plan was then to find some £26bn in spending cuts – since tax rises weren’t part of the plan – by 2016-17 in order to achieve the government’s aims.

Unfortunately, this year things seem depressingly familiar. At the Budget, the OBR predicted that economic growth would be 0.8 per cent this year, but independent forecasters now think it will be more like a 0.3 per cent contraction. As a result, public borrowing is running 10 per cent above the OBR’s March forecast. None of this is great news, but it wouldn’t be so bad if the higher borrowing was a temporary reflection of the weakness in the economy that would resolve itself once things get back to normal. Unfortunately, the Social Market Foundation’s analysis – part of a joint report produced with the RSA yesterday - shows that this doesn’t seem to be the case. At least not according the models the OBR uses.  

Unemployment has been falling for most of this year. While that’s a good news story in itself, it implies that the economy may have moved closer to its capacity. But with less far to bounce back, a bigger chunk of this year’s £122bn underlying annual government borrowing will remain when output finally does reach its full capacity. And the only way to fill that hole is to close the gap between revenue and spending.

Our analysis, using the OBR methodology, suggests that getting the government’s Budget 2012 plans back on track would require a further £22bn of spending cuts or tax rises by 2017-18. The Chancellor has some room to ease up on his plans and still hit his mandate, but whatever way you look at it, the OBR’s models suggest that a lot more fiscal pain is on the way. Combined with the cuts already planned, the total size of the task after 2014 could be £48bn by 2017-18.

If the Chancellor sticks to his plan to keep taxes unchanged and cut £10.5bn from the social security budget, most of the work will be done by cuts in public services. That would require 11 per cent real-terms budget reductions in every department over the first three years of the next parliament. And if health, education and international development spending were to be protected, the impact elsewhere would rise to an eye-watering 23 per cent.

All of this would come on top of the spending squeeze that’s already underway and planned to run until 2015. The consequences of the eight years of cuts would be to decimate spending in some areas, with some departments over 40 per cent smaller once the public finances are back to balance.

It must be hoped that the OBR’s models are wrong in their implications and that the economy is in fact still some distance from its potential level. But if the OBR’s advice follows it past form, the news will be grim, requiring cuts that will run deep into next parliament. Against a background of four years’ unprecedented cuts, a further squeeze on anything like the scale implied by the SMF’s analysis will represent the central issue at the next election, forcing on the electorate stark decisions about the kind of public services we want in the UK.

But we mustn’t have a re-run of the 2010 election, in which the three parties connived in presenting vague plans and disingenuous language to mask the scale of the problem. Osborne made a bold decision in setting up the independent OBR. Perhaps, before the next election he should make another, and require it publicly to adjudicate on the detail and viability of each of the main parties’ plans. If the electorate is to choose, it must be informed.

Ian Mulheirn is director of the Social Market Foundation

George Osborne will deliver the Autumn Statement on 5 December. Photograph: Getty Images.

Ian Mulheirn is the director of the Social Market Foundation.

Photo: Getty
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There's just one future for the left: Jeremy Corbyn

Labour's new leader is redefining Labour for the 21st century, argues Liam Young. 

The politics of the resurgent left comes down to one simple maxim: people are sick and tired of establishment politics. When one makes this statement it is usually met with some form of disapproval. But it is important to realise that there are two different types of people that you have this conversation with.

First there are the people I surround myself with in a professional environment: political types. Then there are the people I surround myself with socially: normal people.

Unsurprisingly the second category is larger than the first and it is also more important. We may sit on high horses on Twitter or Facebook and across a multitude of different media outlets saying what we think and how important what we think is, but in reality few outside of the bubble could care less.

People who support Jeremy Corbyn share articles that support Jeremy Corbyn - such as my own. People who want to discredit Jeremy Corbyn share articles that discredit Jeremy Corbyn - like none of my own. It is entirely unsurprising right? But outside of this bubble rests the future of the left. Normal people who talk about politics for perhaps five minutes a day are the people we need to be talking to, and I genuinely believe that Labour is starting to do just that.

People know that our economy is rigged and it is not just the "croissant eating London cosmopolitans" who know this. It is the self-employed tradesman who has zero protection should he have to take time off work if he becomes ill. It is the small business owner who sees multi-national corporations get away with paying a tiny fraction of the tax he or she has to pay. And yes, it is the single mother on benefits who is lambasted in the street without any consideration for the reasons she is in the position she is in. And it is the refugee being forced to work for less than the minimum wage by an exploitative employer who keeps them in line with the fear of deportation. 

The odds are stacked against all normal people, whether on a zero hours contract or working sixty hours a week. Labour has to make the argument from the left that is inclusive of all. It certainly isn’t an easy task. But we start by acknowledging the fact that most people do not want to talk left or right – most people do not even know what this actually means. Real people want to talk about values and principles: they want to see a vision for the future that works for them and their family. People do not want to talk about the politics that we have established today. They do not want personality politics, sharp suits or revelations on the front of newspapers. This may excite the bubble but people with busy lives outside of politics are thoroughly turned off by it. They want solid policy recommendations that they believe will make their lives better.

People have had enough of the same old, of the system working against them and then being told that it is within their interest to simply go along with it.  It is our human nature to seek to improve, to develop. At the last election Labour failed to offer a vision of future to the electorate and there was no blueprint that helped people to understand what they could achieve under a Labour government. In the states, Bernie Sanders is right to say that we need a political revolution. Here at home we've certainly had a small one of our own, embodying the disenchantment with our established political discourse. The same-old will win us nothing and that is why I am firmly behind Jeremy Corbyn’s vision of a new politics – the future of the left rests within it. 

Liam Young is a commentator for the IndependentNew Statesman, Mirror and others.