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.

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
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Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

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