Borrowing is much higher than it should be. Photo: Getty
Show Hide image

Government borrowing: the numbers don’t add up

There is less scope in the years ahead for our current levels of borrowing to be eliminated by further economic growth. 

Friday’s public spending figures brought some small comfort to the Chancellor. In September, borrowing for the year was 10 per cent higher than the previous year; the gap has now narrowed to 6 per cent. But that is very small comfort indeed when borrowing was supposed to fall by around 12 per cent this year.

The initial signs looked good: GDP growth for 2014 is expected to come in at around 3 per cent, higher than the OBR forecast back in March. But poor wage growth has continued to hold tax receipts down. The result is that borrowing is much higher than it should be. 

At the same time, economic forecasters are putting the higher than expected growth down to a faster recovery rather than an improvement in the underlying health of the economy. This means that there is less scope in the years ahead for our current levels of borrowing to be eliminated by further economic growth. 

This has serious consequences for fiscal targets in the next parliament. The Conservatives have said that if they win the next election, they would seek to generate an overall surplus by 2018-19. 

On the plans set out back in March, that looked feasible. With £38bn of cuts to government departments after 2015-16, the OBR forecast that by 2018-19, the next government would have eliminated borrowing and would in fact be running a surplus of just over £1 billion. 

The SMF’s calculations, based on the latest economic forecasts, shows that this is no longer likely to be the case. Instead, even with the £38bn of cuts, borrowing will still be at around £14bn. To hit their targets, the Conservatives would have to bring the total cuts after 2015-16 to £52bn.

Since 2010, the deadline for completing the deficit reduction programme has had to be repeatedly postponed. In large part, thisis because the state of the economy has disappointed. In the next parliament, as with this one, the performance of the economy will make the difference between success and failure in meeting any of the main political parties’ fiscal targets. If, for example, it were possible to repeat the sustainable growth era of the early 2000s, the need for further cuts after 2015-16 would disappear. By contrast, if we see a repeat of poor underlying productivity growth seen in recent years, the size of the cuts required could balloon.

The next government must have an ambitious plan to boost long-term growth, and repairing the UK economy must be seen and treated as an integral part of any public spending strategy. This means that areas of spending that have growth enhancing-benefits must be prioritised.

The spending cuts programme was expected to be over in time for the 2015 general election. Instead, the next incoming government will have an even bigger challenge on its hands than in 2010: making further fierce cuts to spending when the easiest savings have already been made.

Nida Broughton is Chief Economist at the Social Market Foundation 

Nida Broughton is Senior Economist at the Social Market Foundation.

Show Hide image

The biggest divide in politics is not left against right, but liberals against authoritarians

My week, including a Lib Dem membership rise, The Avalanches, and why I'm putting pressure on Theresa May over child refugees.

It is a boost for us that Nick Clegg has agreed to return to the front line and be our Brexit spokesperson. I hadn’t even had a chance at our meeting to make him the offer when he said: “Before we start, I’ve been thinking about this and want to take on the fight over Europe.”

With Labour apparently willing to give the Tories a free pass to take us out of Europe, the Liberal Democrats are the only UK-wide party that will go into the next election campaigning to maintain our membership of the EU. The stage is remarkably clear for us to remind Theresa May precisely what she would be risking if we abandon free trade, free movement, environmental protection, workers’ rights and cross-border security co-operation. More than a month on from the referendum, all we have heard from the Tories is that “Brexit means Brexit” – but they have given us no clue that they understand what that means.

 

Premature obituaries

Not long ago, the received wisdom was that all political parties were dying – but lately the supposed corpses have twitched into life. True, many who have joined Labour’s ranks are so hard left that they don’t see winning elections as a primary (or even a desirable) purpose of a party, and opening up Labour to those with a very different agenda could ultimately destroy it.

Our experience has been happier: 20,000 people joined the Liberal Democrat fightback in the wake of the 2015 general election result, and 17,000 more have joined since the referendum. We now have more members than at any time this century.

 

Breaking up is hard to do

Journalists have been asking repeatedly if I want to see the break-up of the Labour Party, with moderates defecting to the Liberal Democrats. I have been clear that I am not a home-wrecker and it is for Labour to determine its own future, just as I focus on advancing the Liberal Democrat cause. Yet I have also been clear that I am happy for my party to be a home for liberals of whatever hue. I enjoyed campaigning in the referendum with a variety of progressive figures, just as moderates from different parties shared platforms in 1975. It struck me that far more unites us than divides us.

That said, not all “moderate” Labour figures could be described as “liberal”, as John Reid demonstrated as Labour home secretary. The modern political divide is less left v right than authoritarian v liberal. Both left and right are looking increasingly authoritarian and outright nasty, with fewer voices prepared to stand up for liberal values.

 

What I did on my holidays

Time off has been virtually non-existent, but I am reading A Wilderness of Mirrors by Mark Meynell (about loss of trust in politics, the media and just about everything). I’m also obsessively listening to Wildflower by the Avalanches, their second album, 16 years after their first. It’s outstanding – almost 60 minutes of intelligently crafted dialogue, samples and epic production.

During the political maelstrom, I have been thinking back to the idyllic few days I spent over half-term on the Scottish island of Colonsay: swimming in the sea with the kids (very cold but strangely exhilarating ­after a decent jog), running and walking. An added bonus is that Colonsay is the smallest island in the world to have its own brewery. I can now heartily recommend it.

 

Preparing for the next fight

The odds are weirdly long on an early general election, but I refuse to be complacent – and not merely because the bookies were so wrong about Brexit. If we have learned one truth about Theresa May as Prime Minister so far, it is that she is utterly ruthless. After her savage cabinet sackings, this is, in effect, a new government. She has refused to go to the country, even though she lectured Gordon Brown on the need to gain the endorsement of the electorate when he replaced Tony Blair. Perhaps she doesn’t care much about legitimacy, but she cares about power.

You can be sure that she will be keeping half an eye on Labour’s leadership election. With Jeremy Corbyn potentially reconfirmed as leader in September against the wishes of three-quarters of his MPs, Mrs May might conclude that she will never have a better chance to increase her narrow majority. Throw in the possibility that the economy worsens next year as Brexit starts to bite, and I rule nothing out.

So, we are already selecting candidates. It is vital that they dig in early. As we are the only party prepared to make the positive case for Europe, such an election would present us with an amazing opportunity.

 

Sitting Priti

David Cameron pledged to take an unspecified number of unaccompanied children from camps across the Continent. I am putting pressure on Theresa May to turn that vague commitment into a proper plan. Having visited such camps, I have been fighting for Britain to give sanctuary to a minimum of 3,000 unaccompanied children, who are currently open to the worst kinds of exploitation. We have heard nothing but silence from the government, with underfunded councils reporting that they are not receiving the help they need from Whitehall.

Meanwhile, it remains government policy to send refugees to Turkey – whose increasingly authoritarian government has just suspended human rights protection.

As if all of this were not grim enough, we have a new Secretary of State for International Development, Priti Patel, who has said that she thinks aid should be used largely to promote trade. As someone who wants our country to be respected around the world, I find this plain embarrassing. Actually, it’s worse. It’s shaming. As with Europe, so with the world: the ­Conservative government is hauling up the drawbridge just when we need more than ever to engage with people beyond our shores.

Tim Farron is the leader of the Liberal Democrats. To join the party, visit: libdems.org.uk/join

Tim Farron is leader of the Liberal Democrats.

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue