Don't celebrate just yet, George. Photo: Getty Images
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Today's borrowing figures are good news - but we're not out of the woods yet

Britain will need five more years like this if George Osborne is to have any chance of balancing the books, warns Nida Broughton.

Today’s Government borrowing figures provide an optimistic backdrop to the Chancellor’s Summer Budget on 8 July. The year has got off to a good start. In March, the OBR expected the total amount borrowed in 2015-16 to fall by around 17%. So far, borrowing in the first two months of 2015-16 is around 24% lower than the same time last year.

It is good news – and it will be a relief for the Chancellor.  The SMF’s analysis shows that George Osborne has set himself a difficult task for this Parliament.  What seems like an easy job – saving £1 in every £100 for two years, turns out to be rather more difficult when spending promises and other factors outside the Government’s direct control have to be paid for. Commitments to spend more on the NHS, international aid and schools have been made. Debt interest payments are forecast to continue to rise. With huge chunks of the Government budget protected from cuts, the SMF estimates that the true scale of the challenge could be closer to having to save £12 in every £100.

Achieving those level of cuts will be hard enough – certainly harder than in 2010. With the easiest cuts already made, Government will need to be innovative to save money whilst keeping up the quality of public services. Yet, the ability to actually push through these cuts, though important, will not be as crucial as economic growth in getting the deficit down.

A look at the OBR’s March 2015 forecast shows that rising tax revenues is supposed to do the majority of the hard work in clearing the deficit. Tax revenues are expected to rise by roughly £20 billion- £30 billion every year over the next few years, allowing borrowing – expected by the OBR to be around £75 billion in 2015-16 - to dwindle to zero by 2018-19.

The Chancellor needs four years of steady economic growth to drive up tax revenues. The question is whether the UK economy can deliver that. We do not yet know whether the poor productivity growth we have seen since the crisis is evidence of a “new normal”; or whether we can in fact return to the levels of growth seen pre-crisis. How ephemeral was the growth we saw before the crash, and how much permanent damage has the economy taken because of the crisis?

The public finance forecast hinges on this. The OBR’s forecasts assume that the answer lies somewhere in the middle: that the economy’s potential to grow has taken a hit, but that it will slowly return to its historical average.  The SMF’s analysis shows that if this does not happen, then borrowing would fail to be eliminated by 2018-19, even if all the cuts currently planned are fully implemented.

The borrowing figures provide some good news. Government revenues – mainly from taxes – are 4% higher than this time last year. It’s a good start, but we’re going to need another few more years of same if the public finances are to be repaired.

Nida Broughton is Senior Economist at the Social Market Foundation.

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The big problem for the NHS? Local government cuts

Even a U-Turn on planned cuts to the service itself will still leave the NHS under heavy pressure. 

38Degrees has uncovered a series of grisly plans for the NHS over the coming years. Among the highlights: severe cuts to frontline services at the Midland Metropolitan Hospital, including but limited to the closure of its Accident and Emergency department. Elsewhere, one of three hospitals in Leicester, Leicestershire and Rutland are to be shuttered, while there will be cuts to acute services in Suffolk and North East Essex.

These cuts come despite an additional £8bn annual cash injection into the NHS, characterised as the bare minimum needed by Simon Stevens, the head of NHS England.

The cuts are outlined in draft sustainability and transformation plans (STP) that will be approved in October before kicking off a period of wider consultation.

The problem for the NHS is twofold: although its funding remains ringfenced, healthcare inflation means that in reality, the health service requires above-inflation increases to stand still. But the second, bigger problem aren’t cuts to the NHS but to the rest of government spending, particularly local government cuts.

That has seen more pressure on hospital beds as outpatients who require further non-emergency care have nowhere to go, increasing lifestyle problems as cash-strapped councils either close or increase prices at subsidised local authority gyms, build on green space to make the best out of Britain’s booming property market, and cut other corners to manage the growing backlog of devolved cuts.

All of which means even a bigger supply of cash for the NHS than the £8bn promised at the last election – even the bonanza pledged by Vote Leave in the referendum, in fact – will still find itself disappearing down the cracks left by cuts elsewhere. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.