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.

Photo: Getty
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Who will win in Manchester Gorton?

Will Labour lose in Manchester Gorton?

The death of Gerald Kaufman will trigger a by-election in his Manchester Gorton seat, which has been Labour-held since 1935.

Coming so soon after the disappointing results in Copeland – where the seat was lost to the Tories – and Stoke – where the party lost vote share – some overly excitable commentators are talking up the possibility of an upset in the Manchester seat.

But Gorton is very different to Stoke-on-Trent and to Copeland. The Labour lead is 56 points, compared to 16.5 points in Stoke-on-Trent and 6.5 points in Copeland. (As I’ve written before and will doubtless write again, it’s much more instructive to talk about vote share rather than vote numbers in British elections. Most of the country tends to vote in the same way even if they vote at different volumes.)

That 47 per cent of the seat's residents come from a non-white background and that the Labour party holds every council seat in the constituency only adds to the party's strong position here. 

But that doesn’t mean that there is no interest to be had in the contest at all. That the seat voted heavily to remain in the European Union – around 65 per cent according to Chris Hanretty’s estimates – will provide a glimmer of hope to the Liberal Democrats that they can finish a strong second, as they did consistently from 1992 to 2010, before slumping to fifth in 2015.

How they do in second place will inform how jittery Labour MPs with smaller majorities and a history of Liberal Democrat activity are about Labour’s embrace of Brexit.

They also have a narrow chance of becoming competitive should Labour’s selection turn acrimonious. The seat has been in special measures since 2004, which means the selection will be run by the party’s national executive committee, though several local candidates are tipped to run, with Afzal Khan,  a local MEP, and Julie Reid, a local councillor, both expected to run for the vacant seats.

It’s highly unlikely but if the selection occurs in a way that irritates the local party or provokes serious local in-fighting, you can just about see how the Liberal Democrats give everyone a surprise. But it’s about as likely as the United States men landing on Mars any time soon – plausible, but far-fetched. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.