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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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.