We need investment, not cuts, to deal with our fiscal headaches

Rather than using the forecast structural surplus to pay down the national debt, the government should invest it in science, skills and childcare.

The financial crisis and subsequent downturn had a huge impact on the public finances. In two years, from 2007-08 to 2009-10, public sector net debt jumped almost twenty percentage points from 37% to 56% of GDP. So when the current government came into power, it did so promising to mend our public finances. It set itself a fiscal mandate to eliminate the structural deficit and a supplementary target to have public sector debt falling by the start of the next parliament – 2015-16.

Poor growth has made these targets hard to achieve. But finally, after years of additional cuts have been pencilled in, there is some good news ahead of the Chancellor’s Autumn Statement on Thursday. Thanks to growth picking up, borrowing is looking better than expected. There are more cuts to come, but for once it’s looking likely that the government will be on track to meet the targets as set out in the Office for Budget Responsibility (OBR)’s last forecast without having to find more savings. Depending on what view the OBR takes of the growth we have had, the likelihood of meeting the mandate may even have risen.

Earlier this year, the OBR expected the fiscal mandate to be met by 2016-17. But what happens after that? The OBR forecast that the structural deficit would turn into a structural surplus of £15bn in 2017-18. It’s worth stopping to think about what this means. The structural part of the current budget is the part that doesn’t change as the economy goes through its usual cycle of downturns and upturns. A zero structural surplus would mean that the government balances its books over the course of an economic cycle. A structural surplus means that it goes even further than this – allowing it to pay down national debt. The Chief Secretary to the Treasury has pointed to the ageing population as the reason for continued austerity throughout the next Parliament. This could be a reasonable strategy. But it might not be the best one.  

The OBR’s Fiscal Sustainability Report, which looks at the long-term outlook for the public finances, shows the debt-to-GDP ratio nicely falling for around a decade after 2017-18, but as the ageing population kicks in, it’s set to sharply rise again in the 2030s, driven by rising health, social care and pension costs. By the early 2060s, public sector net debt is set to hit nearly 100% of GDP.

These levels make our current problems seem rather small in comparison. And they also raise the question of whether the ageing population is something that can really be tackled through cuts alone. The OBR numbers show that if we can boost the economy’s productivity, debt wouldn’t start rising until around two decades later. But in recent years, our productivity growth has been sluggish. If it doesn’t pick up, we may even fail to meet the OBR’s central case scenario. 

So there are big gains to be had from boosting our long-term productivity. The £15bn could be used to treble the science research budget, treble our adult skills budget or introduce universal childcare, enabling more parents to go out to work – with money still left over. The choice isn’t straightforward.  The Chancellor – and future Chancellors – are facing a new trade-off, one where too little investment now could risk a huge fiscal headache in the future.

George Osborne speaks at the Conservative conference in Manchester earlier this year. Photograph: Getty Images.

Nida Broughton is Senior Economist at the Social Market Foundation.

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Could tactical voting stop Brexit?

Could tactical votes soften the Brexit blow?

Could tactical voting save Britain from the hardest of exits from the European Union?

That's the hope of Open Britain, which has unveiled a list of 20 seats held by supporters of a hard Brexit (19 Conservatives and one Labour MP, Kate Hoey) in areas that either split evenly in the referendum or backed a Remain vote, and a list of 20 seats held by pro-Europeans: among them Labour MPs Pat McFadden and Liz Kendall, Liberal Democrat MPs Nick Clegg and Tom Brake, and Caroline Lucas, the Greens' sole MP. (Read the full list here.)

"Remain group seeks to oust pro-Brexit MPs" is the Guardian's splash. The intiative has received the thumbs up from Peter Mandelson on Newsnight and Tony Blair in the Guardian. But will it work?

A quick look at the seats in question shows the challenge for anyone hoping for a pro-European front to frustrate Brexit. Theresa Villiers has a majority of more than 7,000 over Labour: and if you're a voter in Chipping Barnet who backed a Remain vote because you were worried about your house price, is Jeremy Corbyn really the answer to your problems? (That said, it's worth noting that thanks to the scale of the 2015 defeat, Chipping Barnet is one of the seats Labour would have to win to get a majority in the House of Commons.)

Or take, say, Kate Hoey in Vauxhall, one of the few people in Labour who can claim to be a unifying figure these days. Yes, she is deeply unpopular in her local party who have mounted several attempts to remove her. Yes, Vauxhall voted heavily to Remain. But - as Jessica Elgot finds in her profile for the Guardian- it also has a large amount of social housing and has more children living in poverty than all but 51 other seats in the House of Commons. There are a great number of people who believe their own interests are better served by sending a Labour MP to Westminster rather than refighting the referendum.

That's a reminder of three things: the first is that the stereotype of the Remain vote as people straight out of the Boden catalogue misses a number of things. The second is that for many people, Brexit will take a back seat.

But the big problem is that you can't make an anti-Brexit - which, by necessity, is essentially an anti-Conservative - alliance work if the main anti-Conservative party is so weak and unattractive to most people. "Voting pro-European" may give Labour's Corbynsceptics a way to advocate a vote for Labour that doesn't endorse Jeremy Corbyn. That doesn't mean it will succeed in stopping Brexit.

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

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