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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Charlottesville: a town haunted by the far right

Locals fear a bitter far right will return.

On 12 August, a car ploughed down pedestrians in the street where I used to buy my pecan pies. I had recently returned to London from Charlottesville, Virginia – the scene of what appears to have been an act of white supremacist terrorism – having worked and taught at the university there for four years. While I unpacked boxes of books, the streets I knew so well were full of hate and fire.

The horror began on the evening of Friday 11 August, when thugs with torches marched across the “Lawn”. Running through the heart of the university, this is where, each Halloween, children don ghoulish costumes and trick-or-treat delighted and generous fourth-year undergraduates.

But there were true monsters there that night. They took their stand on the steps of the neoclassical Rotunda – the site of graduation – to face down a congregation about to spill out of St Paul’s Episcopal opposite.

Then, on Saturday morning, a teeming mass of different groups gathered in Emancipation Park (formerly Lee Park), where my toddler ran through splash pads in the summer.

We knew it was coming. Some of the groups were at previous events in Charlottesville’s “summer of hate”. Ever since a permit was granted for the “Unite the Right” march, we feared that this would be a tipping point. I am unsure whether I should have been there, or whether I was wise to stay away.

The truth is that this had nothing to do with Charlottesville – and everything to do with it. From one perspective, our small, sleepy university town near the Blue Ridge Mountains was the victim of a showdown between out-of-towners. The fighting was largely not between local neo-Nazis and African Americans, or their white neighbours, for that matter. It was between neo-Nazis from far afield – James Alex Fields, Jr, accused of being the driver of the lethal Dodge Challenger, was born in Kentucky and lives in Ohio – and outside groups such as “Antifa” (anti-fascist). It was a foreign culture that was foisted upon the city.

Charlottesville is to the American east coast what Berkeley is to the west: a bastion of liberalism and political correctness, supportive of the kind of social change that the alt-right despises. Just off camera in the national newsfeeds was a banner hung from the public  library at the entrance of Emancipation Park, reading: “Proud of diversity”.

I heard more snippets of information as events unfolded. The counter-protesters began the day by drawing on the strength of the black church. A 6am prayer meeting at our local church, First Baptist on Main (the only church in Charlottesville where all races worshipped together before the Civil War), set the tone for the non-violent opposition.

The preacher told the congregation: “We can’t hate these brothers. They have a twisted ideology and they are deeply mistaken in their claim to follow Christ, but they are still our brothers.” Then he introduced the hymns. “The resistance of black people to oppression has only been kept alive through music.”

The congregation exited on to Main Street, opposite my old butcher JM Stock Provisions, and walked down to the statue of Meriwether Lewis and William Clark – the early 19th-century Bear Grylls types who explored the west. They went past Feast! – the delicacy market where we used to spend our Saturday mornings – and on to the dreamy downtown mall where my wife and I strolled on summer evenings and ate southern-fried chicken at the Whiskey Jar.

The permit for the “protest” was noon to 5pm but violence erupted earlier. Between 10.30am and 12pm, the white supremacists, protected by a paramilitary guard, attacked their opponents. As the skirmishes intensified, police were forced to encircle the clashing groups and created, in effect, a bizarre zone of “acceptable” violence. Until the governor declared a state of emergency, grown men threw bottles of piss at each other.

At noon, the crowd was dispersed and the protesters spilled out into the side streets. This was when the riot climaxed with the horrific death of the 32-year-old Heather Heyer. Throughout Saturday afternoon and evening, the far-right groups marauded the suburbs while residents locked their doors and closed their blinds.

I sat in London late into the night as information and prayer requests trickled through. “There are roughly 1,000 Nazis/KKK/alt-right/southern nationalists still around – in a city of 50,000 residents. If you’re the praying type, keep it up.”

No one in Charlottesville is in any doubt as to how this atrocity became possible. Donald Trump has brought these sects to group consciousness. They have risen above their infighting to articulate a common ground, transcending the bickering that mercifully held them back in the past.

In the immediate aftermath, there is clarity as well as fury. My colleague Charles Mathewes, a theologian and historian, remarked: “I still cannot believe we have to fight Nazis – real, actual, swastika-flag-waving, be-uniformed, gun-toting Nazis, along with armed, explicit racists, white supremacists and KKK members. I mean, was the 20th century simply forgotten?”

There is also a sense of foreboding, because the overwhelming feeling with which the enemy left was not triumph but bitterness. Their permit had been to protest from noon to 5pm. They terrorised a town with their chants of “Blood and soil!” but their free speech was apparently not heard. Their safe space, they claim, was not protected.

The next day, the organiser of the march, Jason Kessler, held a press conference to air his grievances. The fear is that the indignant white supremacists will be back in greater force to press their rights.

If that happens, there is one certainty. At one point during the dawn service at First Baptist, a black woman took the stand. “Our people have been oppressed for 400 years,” she said. “What we have learned is that the only weapon which wins the war is love.”

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear