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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How the row over Jackie Walker triggered a full-blown war in Momentum

Jon Lansman, the organisation's founder, is coming under attack. 

The battle for control within Momentum, which has been brewing for some time, has begun in earnest.

In a sign of the growing unrest within the organisation – established as the continuation of Jeremy Corbyn’s first successful leadership bid, and instrumental in delivering in his re-election -  a critical pamphlet by the Alliance for Workers’ Liberty (AWL), a Trotskyite grouping, has made its way into the pages of the Times, with the “unelected” chiefs of Momentum slated for turning the organisation into a “bland blur”.

The issue of contention: between those who see Momentum as an organisation to engage new members of the Labour party, who have been motivated by Jeremy Corbyn but are not yet Corbynites.

One trade unionist from that tendency described what they see the problem as like this: “you have people who have joined to vote for Jeremy, they’re going to meetings, but they’re voting for the Progress candidates in selections, they’re voting for Eddie Izzard [who stood as an independent but Corbynsceptic candidate] in the NEC”.  

On the other are those who see a fightback by Labour’s right and centre as inevitable, and who are trying to actively create a party within a party for what they see as an inevitable purge. One activist of that opinion wryly described Momentum as “Noah’s Ark”.

For both sides, Momentum, now financially stable thanks to its membership, which now stands at over 20,000, is a great prize. And in the firing line for those who want to turn Momentum into a parallel line is Jon Lansman, the organisation’s founder.

Lansman, who came into politics as an aide to Tony Benn, is a figure of suspicion on parts of the broad left due to his decades-long commitment to the Labour party. His major opposition within Momentum and on its ruling executive comes from the AWL.

The removal of Jackie Walker as a vice-chair of Momentum after she said that Holocaust Memorial Day belittled victims of other genocides has boosted the AWL, although the AWL's Jill Mountford, who sits on Momentum's ruling executive, voted to remove Walker as vice-chair. (Walker remains on the NEC, as she has been elected by members). But despite that, the AWL, who have been critical of the process whereby Walker lost her post, have felt the benefit across the country.

Why? Because that battle has triggered a series of serious splits, not only in Momentum’s executive but its grassroots. A raft of local groups have thrown out the local leadership, mostly veterans of Corbyn’s campaign for the leadership, for what the friend of one defeated representative described as “people who believe the Canary [a pro-Corbyn politics website that is regularly accused of indulging and promoting conspiracy theories]”.

In a further series of reverses for the Lansmanite caucus, the North West, a Momentum stronghold since the organisation was founded just under a year ago, is slipping away from old allies of Lansman and towards the “new” left. As one insider put it, the transition is from longstanding members towards people who had been kicked out in the late 1980s and early 1990s by Neil Kinnock. The constituency party of Wallasey in particular is giving senior figures in Momentum headaches just as it is their opponents on the right of the party, with one lamenting that they have “lost control” of the group.

It now means that planned changes to Momentum’s structure, which the leadership had hoped to be rubberstamped by members, now face a fraught path to passage.

Adding to the organisation’s difficulties is the expected capture of James Schneider by the leader’s office. Schneider, who appears widely on television and radio as the public face of Momentum and is well-liked by journalists, has an offer on the table to join Jeremy Corbyn’s team at Westminster as a junior to Seumas Milne.

The move, while a coup for Corbyn, is one that Momentum – and some of Corbyn’s allies in the trade union movement – are keen to resist. Taking a job in the leader’s office would reduce still further the numbers of TV-friendly loyalists who can go on the airwaves and defend the leadership. There is frustration among the leader’s office that as well as Diane Abbott and John McDonnell, who are both considered to be both polished media performers and loyalists, TV bookers turn to Ken Livingstone, who is retired and unreliable, and Paul Mason, about whom opinions are divided within Momentum. Some regard Mason as a box office performer who needs a bigger role, others as a liability.

But all are agreed that Schneider’s expected departure will weaken the media presence of Corbyn loyalists and also damage Momentum. Schneider has spent much of his time not wrangling journalists but mediating in local branches and is regarded as instrumental in the places “where Momentum is working well” in the words of one trade unionist. (Cornwall is regarded as a particular example of what the organisation should be aiming towards)

It comes at a time when Momentum’s leadership is keen to focus both on its external campaigns but the struggle for control in the Labour party. Although Corbyn has never been stronger within the party, no Corbynite candidate has yet prevailed in a by-election, with the lack of available candidates at a council level regarded as part of the problem. Councilors face mandatory reselection as a matter of course, and the hope is that a bumper crop of pro-Corbyn local politicians will go on to form the bulk of the talent pool for vacant seats in future by-elections and in marginal seats at the general election.

But at present, a draining internal battle is sapping Momentum of much of its vitality. But Lansman retains two trump cards. The first is that as well as being the founder of the organisation, he is its de facto owner: the data from Jeremy Corbyn’s leadership campaigns, without which much of the organisation could not properly run, is owned by a limited company of which he is sole director. But “rolling it up and starting again” is very much the nuclear option, that would further delay the left’s hopes of consolidating its power base in the party.

The second trump card, however, is the tribalism of many of the key players at a local level, who will resist infiltration by groups to Labour’s left just as fiercely as many on the right. As one veteran of both Corbyn’s campaigns reflected: “If those who have spent 20 years attacking our party think they have waiting allies in the left of Labour, they are woefully mistaken”. 

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