Revealed: how Osborne manipulated the borrowing figures

Chancellor included 4G receipts and gilt interest payments to make it appear as if the deficit will fall this year.

Against expectations, George Osborne announced in his Autumn Statement that borrowing would fall, not rise, this year. The news cheered the Conservative backbenches and clearly surprised Ed Balls, who was jeered by Osborne and David Cameron as he mistakenly said the deficit was "not rising" (he meant to say it was rising). Borrowing so far this year is £5bn (7.4 per cent) higher than in the same period last year - it seemed there was no escape route for the Chancellor.

So how did he do it? Well, turn to p. 12 of the Office for Budget Responsibility document and it becomes clear that Osborne has performed an accounting trick worthy of Enron. First, he added the expected £3.5bn receipts from the 4G mobile spectrum auction - even though it's yet to take place. Second, he included the interest transferred to the Treasury from the Bank of England's Quantitative Easing programme (worth £11.5bn), despite the Institute for Fiscal Studies warning him that it would call into doubt his credibility. Were it not for these two measures, borrowing would be £15bn higher than stated by Osborne. If we add that £15bn to the £108bn figure provided by Osborne, then total forecast borrowing for this year becomes £123bn, £1.4bn higher than last year. Little wonder that the Chancellor was so keen to bag the 4G receipts early.

But while these fiscal somersaults might allow Osborne to claim he's reduced borrowing, what reputation he had for statistical transparency has been destroyed. In his speech to the Commons, the Chancellor boasted that "it is a measure of the constitutional achievement that it is taken for granted that our country’s forecast is now produced independently of the Treasury". That claims looks very questionable today.

George Osborne leaves the Treasury ahead of the Autumn Statement. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.