View all newsletters
Sign up to our newsletters

Support 110 years of independent journalism.

  1. Business
  2. Economics
9 February 2016

George Osborne’s mistakes are coming back to haunt him

George Osborne's next budget may be a zombie one, warns Chris Leslie.

By Chris Leslie

Spending Reviews are supposed to set a strategic, stable course for at least a three year period. But just three months since the Chancellor claimed he no longer needed to cut as far or as fast this Parliament, his over-optimistic reliance on bullish forecasts looks misplaced.

There is a real risk that the Budget on March 16 will be a ‘zombie’ Budget, with the spectre of cuts everyone thought had been avoided rearing their ugly head again, unwelcome for both the public and for the Chancellor’s own ambitions.

In November George Osborne relied heavily on a surprise £27billion windfall from statistical reclassifications and forecasting optimism to bury expected police cuts and politically disastrous cuts to tax credits. We were assured these issues had been laid to rest.

But the Chancellor’s swagger may have been premature. Those higher income tax receipts he was banking on? It turns out wage growth may not be so buoyant, according to last week’s Bank of England Inflation Report. The Institute for Fiscal Studies suggest the outlook for earnings growth will be revised down taking £5billion from revenues.

Improved capital gains tax receipts? Falling equity markets and sluggish housing sales may depress CGT and stamp duties. And the oil price shock could hit revenues from North Sea production.

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

Back in November, the OBR revised up revenues by an astonishing £50billion+ over this Parliament. This now looks a little over-optimistic.

But never let it be said that George Osborne misses an opportunity to scramble out of political danger. He immediately cashed in those higher projected receipts, but in doing so he’s landed himself with very little wriggle room for the forthcoming Budget.

Borrowing is just not falling as fast as forecast. The £78billion deficit should have been cut by £20billion by now but it’s down by just £11billion. So what? Well this is a Chancellor who has given a cast iron guarantee to deliver a surplus by 2019-20. So he cannot afford to turn a blind eye.

All this points towards a Chancellor forced to revisit cuts he thought he wouldn’t need to make. A zombie Budget where unpopular reductions to public services are still very much alive, even though they were supposed to be history. More aggressive cuts, stealthy tax rises, pension changes designed to benefit the Treasury more than the public – all of these are on the cards. 

Is this the Chancellor’s misfortune or was he chancing his luck? As the IFS pointed out at the time, there was only really a 50/50 chance these revenue windfalls were built on solid ground. With growth and productivity still lagging, gloomier market expectations, exports sluggish and both construction and manufacturing barely contributing to additional expansion, it looks as though the Chancellor was just too optimistic, or perhaps too desperate for a short-term political solution. It wouldn’t be the first time that George Osborne has prioritised his own political interests.

There’s no short cut here. Productivity-enhancing public services and infrastructure could and should have been front and centre in that Spending Review. Rebalancing the economy should also have been a feature of new policy in that Autumn Statement, but instead the Chancellor banked on forecast revisions and growth too reliant on the service sector alone. Infrastructure decisions are delayed for short-term politicking. Uncertainty about our EU membership holds back business investment. And while we ought to have a consensus about eradicating the deficit, the excessive rigidity of the Chancellor’s fiscal charter bears down on much-needed capital investment.

So for those who thought that extreme cuts to services, a harsh approach to in-work benefits or punitive tax rises might be a thing of the past, beware the Chancellor whose hubris may force him to revive them after all. 

Content from our partners
The promise of prevention
How Labour hopes to make the UK a leader in green energy
Is now the time to rethink health and care for older people? With Age UK

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU