Osborne is failing on his own terms as deficit increases

The budget is floating on a raft of windfall revenues.

The latest borrowing figures for the public sector have been released, and they show that George Osborne continues to be not particularly good at achieving his stated aim of deficit reduction.

Public sector net borrowing — the accounting name for what is usually called the deficit — was £15.4bn in December 2012, £0.6bn higher than it was in December 2011. This still leaves the cumulative deficit for the financial year 2012/13 on target to be considerably lower than it was for the financial year 2011/12 (£78.5bn compared to last year's £99.3bn), but success of deficit reduction has been reduced again. That figure, however, takes into account the windfall revenue from the transfer of the Royal Mail pension scheme. Excluding that windfall, the deficit would be £7.2bn higher this cumulative year than last.

In addition, and crucially, the last quarter of financial year 2012/13 is expected to see the transfer of profits from the Bank of England's quantitative easing program and the proceeds of the 4G spectrum auction — both of which are subject to political controversy, and both of which are expected to lead to sizeable reductions in the 2012/13 deficit. The 4G auction led to upset around the time of the autumn statement, when the Chancellor brought forward the revenue from it in order to be able to claim to be reducing the deficit; while the transfer of QE profits was called by our economics editor David Blanchflower a "smash-and-grab" raid on the Bank of England (even if it may not have been that bad in hindsight). The ONS concludes:

the transfers from the BEAPFF [the QE transfer] will reduce [the deficit] by £11.5 billion… the sales of the 4G spectrum will reduce [the deficit] by £3.5 billion.

Both of those are also windfall revenue, in the classic sense: the chancellor can't claim any fiscal prudence by pointing to the revenue they raise, since they will come once and only once. (And the latter, at least, might well turn out to be fiscal imprudence, if the Treasury ends up having to pay back more than it appropriated.)

The failure to cut the deficit may not be a bad thing, of course. If the economy is suffering from a paucity of aggregate demand, then the government cutting spending as fast as it wanted to would be terrible. Even while the government has been slashing public services, its inability to promote even minimal growth has meant that automatic fiscal stabilisers — things like means-tested and out-of-work benefits — have caused the resultant deficit reduction to be minimal. Keynesians should thank George Osborne for being so ineffectual at achieving the goal he has staked his political career on. His own party might not be quite so forthcoming.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Richmond is a wake-up call for Labour's Brexit strategy

No one made Labour stand in Richmond Park. 

Oh, Labour Party. There was a way through.

No one made you stand in Richmond Park. You could have "struck a blow against the government", you could have shared the Lib Dem success. Instead, you lost both your dignity and your deposit. And to cap it all (Christian Wolmar, take a bow) you self-nominated for a Nobel Prize for Mansplaining.

It’s like the party strategist is locked in the bowels of HQ, endlessly looping in reverse Olivia Newton John’s "Making a Good Thing Better".

And no one can think that today marks the end of the party’s problems on Brexit.

But the thing is: there’s no need to Labour on. You can fix it.

Set the government some tests. Table some amendments: “The government shall negotiate having regard to…”

  • What would be good for our economy (boost investment, trade and jobs).
  • What would enhance fairness (help individuals and communities who have missed out over the last decades).
  • What would deliver sovereignty (magnify our democratic control over our destiny).
  • What would improve finances (what Brexit makes us better off, individually and collectively). 

And say that, if the government does not meet those tests, the Labour party will not support the Article 50 deal. You’ll take some pain today – but no matter, the general election is not for years. And if the tests are well crafted they will be easy to defend.

Then wait for the negotiations to conclude. If in 2019, Boris Johnson returns bearing cake for all, if the tests are achieved, Labour will, and rightly, support the government’s Brexit deal. There will be no second referendum. And MPs in Leave voting constituencies will bear no Brexit penalty at the polls.

But if he returns with thin gruel? If the economy has tanked, if inflation is rising and living standards have slumped, and the deficit has ballooned – what then? The only winners will be door manufacturers. Across the country they will be hard at work replacing those kicked down at constituency offices by voters demanding a fix. Labour will be joined in rejecting the deal from all across the floor: Labour will have shown the way.

Because the party reads the electorate today as wanting Brexit, it concludes it must deliver it. But, even for those who think a politician’s job is to channel the electorate, this thinking discloses an error in logic. The task is not to read the political dynamic of today. It is to position itself for the dynamic when it matters - at the next general election

And by setting some economic tests for a good Brexit, Labour can buy an option on that for free.

An earlier version of this argument appeared on Jolyon Maugham's blog Waiting For Tax.

Jolyon Maugham is a barrister who advised Ed Miliband on tax policy. He blogs at Waiting for Tax, and writes for the NS on tax and legal issues.