George Osborne stands behind the bar during a visit to officially re-open The Red Lion pub following a major refurbishment in Westminster on February 25, 2014. Photograph: Getty Images
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How big is Osborne's black hole? The problem is we don't know

The level of austerity required varies hugely depending on how much growth is thought possible.

Today's FT story on George Osborne's "£20bn black hole" might appear puzzling at first. With the British economy growing faster than that of any other major western country (albeit after three years of stagnation), shouldn't the public finances be getting better, not worse? On one level they are: borrowing for 2013-14  is currently £4bn lower than last year. But the problem for the Chancellor is that the models used by the Office for Budget Responsibility (the budgetary watchdog he founded in 2010), which the FT has replicated, deem this improvement to be almost entirely cyclical (temporary), rather than structural (permanent). While the body's short-term forecasts have improved, its long-term forecasts have worsened. Osborne's cuts have permanently dented the economy's growth potential. The result is that the structural deficit (the part of the deficit that exists regardless of the level of growth) is now estimated to be even bigger than first thought, and that means even more austerity will be needed to balance the books. 

The problem with all of these forecasts is that they hinge on one highly uncertain judgement: the size of the output gap. The output gap (or the level of "spare capacity") is the difference between current and potential growth. If the gap is thought to be large, then a significant chunk of the deficit can be eliminated over time through growth, rather than spending cuts and tax rises. But if it is thought to be small (the OBR puts it at 1.8 per cent), then even greater austerity is needed. At present, the OBR estimates that the structural deficit will be £85bn this year, while the total deficit will be £111bn (meaning £26bn of austerity is avoided). But the FT''s updated forecasts suggest that the difference between the two might be smaller than thought, hence the warning of a "£20bn black hole". 

The complication for Osborne (and Ed Balls, who has pledged to eliminate the current deficit by the end of the next parliament) is that economists are hugely divided over the potential for higher growth (the Independent's Ben Chu has a useful graph of their differing forecasts here). The Bank of England's Monetary Policy Committee is even more pessimistic than the OBR; it estimates that the output gap is just 1-1.5 per cent, meaning that austerity of £91-97bn will be needed to Osborne to meet his target of running a budget surplus by 2018-19. But the market, on average, is more optimistic than both; it assumes an output gap of 2.7 per cent, meaning the level of austerity required falls to £77bn. Others are even more optimistic. The National Institute for Economic and Social Research (NIESR) puts the output gap at 4.3 per cent, with £60bn of austerity required, at least £30bn less than assumed by the Bank of England. 

The danger highlighted by some economists is that an overly pessimistic estimate could lead to austerity being applied more severely than necessary. As Andrew Goodwin, senior economist at Oxford Economics, has said: "Oxford Economics analysis suggests that the economy has a significantly larger amount of spare capacity than the OBR estimates which, in turn, suggests that the medicine of austerity could end up being applied in a dose higher than the patient actually needs."  This calculation matters as much for Labour as it does for the Tories. The level of growth thought possible will determine the amount the party can spend on its priorities - housing, childcare, employment, skills, health and social care - while meeting its tough deficit reduction targets. If it follows Osborne and uses the OBR's pessimistic forecasts, it could end up with a minimalist manifesto it later regrets. 

Wonkish it might be, but the output gap is probably the most important number in British politics. 

George Eaton is political editor of the New Statesman.

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7 problems with the Snooper’s Charter, according to the experts

In short: it was written by people who "do not know how the internet works".

A group of representatives from the UK Internet Service Provider’s Association (ISPA) headed to the Home Office on Tuesday to point out a long list of problems they had with the proposed Investigatory Powers Bill (that’s Snooper’s Charter to you and me). Below are simplified summaries of their main points, taken from the written evidence submitted by Adrian Kennard, of Andrews and Arnold, a small ISP, to the department after the meeting. 

The crucial thing to note is that these people know what they're talking about - the run the providers which would need to completely change their practices to comply with the bill if it passed into law. And their objections aren't based on cost or fiddliness - they're about how unworkable many of the bill's stipulations actually are. 

1. The types of records the government wants collected aren’t that useful

The IP Bill places a lot of emphasis on “Internet Connection Records”; i.e. a list of domains you’ve visited, but not the specific pages visited or messages sent.

But in an age of apps and social media, where we view vast amounts of information through single domains like Twitter or Facebook, this information might not even help investigators much, as connections can last for days, or even months. Kennard gives the example of a missing girl, used as a hypothetical case by the security services to argue for greater powers:

 "If the mobile provider was even able to tell that she had used twitter at all (which is not as easy as it sounds), it would show that the phone had been connected to twitter 24 hours a day, and probably Facebook as well… this emotive example is seriously flawed”

And these connection records are only going to get less relevant over time - an increasing number of websites including Facebook and Google encrypt their website under "https", which would make finding the name of the website visited far more difficult.

2. …but they’re still a massive invasion of privacy

Even though these records may be useless when someone needs to be found or monitored, the retention of Internet Connection Records (IRCs) is still very invasive – and can actually yield more information than call records, which Theresa May has repeatedly claimed are the non-digital equivalent of ICRs. 

Kennard notes: “[These records] can be used to profile them and identify preferences, political views, sexual orientation, spending habits and much more. It is useful to criminals as it would easily confirm the bank used, and the time people leave the house, and so on”. 

This information might not help find a missing girl, but could build a profile of her which could be used by criminals, or for over-invasive state surveillance. 

3. "Internet Connection Records" aren’t actually a thing

The concept of a list of domain names visited by a user referred to in the bill is actually a new term, derived from “Call Data Record”. Compiling them is possible, but won't be an easy or automatic process.

Again, this strongly implies that those writing the bill are using their knowledge of telecommunications surveillance, not internet era-appropriate information. Kennard calls for the term to be removed, or at least its “vague and nondescript nature” made clear in the bill.

4. The surveillance won’t be consistent and could be easy to dodge

In its meeting with the ISPA, the Home Office implied that smaller Internet service providers won't be forced to collect these ICR records, as it would use up a lot of their resources. But this means those seeking to avoid surveillance could simply move over to a smaller provider.

5. Conservative spin is dictating the way we view the bill 

May and the Home Office are keen for us to see the surveillance in the bill as passive: internet service providers must simply log the domains we visit, which will be looked at in the event that we are the subject of an investigation. But as Kennard notes, “I am quite sure the same argument would not work if, for example, the law required a camera in every room in your house”. This is a vast new power the government is asking for – we shouldn’t allow it to play it down.

6. The bill would allow our devices to be bugged

Or, in the jargon, used in the draft bill, subjected to “equipment interference”. This could include surveillance of everything on a phone or laptop, or even turning on its camera or webcam to watch someone. The bill actually calls for “bulk equipment interference” – when surely, as Kennard notes, “this power…should only be targeted at the most serious of criminal suspects" at most.

7. The ability to bug devices would make them less secure

Devices can only be subject to “equipment interference” if they have existing vulnerabilities, which could also be exploited by criminals and hackers. If security services know about these vulnerabilities, they should tell the manufacturer about them. As Kennard writes, allowing equipment interference "encourages the intelligence services to keep vulnerabilities secret” so they don't lose surveillance methods. Meanwhile, though, they're laying the population open to hacks from cyber criminals. 


So there you have it  – a compelling soup of misused and made up terms, and ethically concerning new powers. Great stuff. 

Barbara Speed is a technology and digital culture writer at the New Statesman and a staff writer at CityMetric.