Forever in his shadow: George Osborne has yet to achieve the more modest targets of his predecessor, Alistair Darling. Photo: Getty Images
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Budget 2015: George Osborne misses his targets again

George Osborne has offered some reprieve on austerity. Let’s hope it gets used wisely.

The usual politics of elections might dictate promising lots of goodies during the campaign and tightening the purse strings once safely in Government. George Osborne appears to have somewhat turned this upside down. The Conservative manifesto promised to eliminate borrowing by 2018-19. Today’s budget speech pushed back the deadline to 2019-20.

Annual day-to-day departmental spending is to be cut by just under £18 billion by 2019-20, or around five per cent in real terms. That doesn’t sound too bad: the OBR says that no year will see cuts as severe as in 2011-12 and 2012-13. However, not all is rosy. Where public spending goes is still seeing big changes. Promises for some public services will mean difficult choices for others. The NHS is to receive an extra £10 billion in real terms by 2020-21, and the MoD budget is to rise by 0.5 per cent in real terms a year. Prior to the election, promises were made on schools funding and international aid. Taken together, this could mean day-to-day spending rising by just under £10 billion by 2019-20 in some areas.

So other public services will still need to make substantial savings to pay for money going to the NHS, schools, aid and defence. However, departments will have more time to find the full savings needed, with the deadlines now pushed back. That’s important because after the last Parliament, the easiest savings will have already been made. In the SMF’s pre-Budget publication, One More Time, we argue that Government will need to take more time in trying to identify the next tranche of savings. Most likely, big reforms will be needed that look ahead to the longer-term challenge of an ageing population, as pointed out in the OBR’s Fiscal Sustainability Review. Giving departments breathing room to do this will ensure that big reforms are not rushed through at a higher price later on.

We will need to wait until the Autumn Spending Review to find out how different departments are set to share the cuts. However, an important principle that must run through the entire Spending Review programme is the need for investment in long-term growth to deliver sustainable rising incomes. Here, there may be reasons to worry. Whilst there is to be a levy on firms is to raise additional sums to fund apprenticeships, gross investment spending has been marked down compared to the March Budget. The roads investment fund paid for by Vehicle Excise Duty will only kick in at the end of the Parliament. The new fiscal rule targeting overall borrowing including investment also increases the vulnerability of capital spending.

Given the UK’s record on productivity, now is not the time to slow down on capital investment. George Osborne has offered some reprieve on austerity. Let’s hope it gets used wisely.

Nida Broughton is Senior Economist at the Social Market Foundation.

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Scotland's huge deficit is an obstacle to independence

The country's borrowing level (9.5 per cent) is now double that of the UK. 

Ever since Brexit, and indeed before it, the possibility of a second Scottish independence referendum has loomed. But today's public spending figures are one reason why the SNP will proceed with caution. They show that Scotland's deficit has risen to £14.8bn (9.5 per cent of GDP) even when a geographic share of North Sea revenue is included. That is more than double the UK's borrowing level, which last year fell from 5 per cent of GDP to 4 per cent. 

The "oil bonus" that nationalists once boasted of has become almost non-existent. North Sea revenue last year fell from £1.8bn to a mere £60m. Total public sector revenue was £400 per person lower than for the UK, while expenditure was £1,200 higher.  

Nicola Sturgeon pre-empted the figures by warning of the cost to the Scottish economy of Brexit (which her government estimated at between £1.7bn and £11.2.bn a year by 2030). But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose considerable austerity. 

Nor would EU membership provide a panacea. Scotland would likely be forced to wait years to join owing to the scepticism of Spain and others facing their own secessionist movements. At present, two-thirds of the country's exports go to the UK, compared to just 15 per cent to other EU states.

The SNP will only demand a second referendum when it is convinced it can win. At present, that is far from certain. Though support for independence rose following the Brexit vote, a recent YouGov survey last month gave the No side a four-point lead (45-40). Until the nationalists enjoy sustained poll leads (as they have never done before), the SNP will avoid rejoining battle. Today's figures are a considerable obstacle to doing so. 

George Eaton is political editor of the New Statesman.