Having delivered this year’s Budget, it’s clear that George Osborne will be breaking two out of three of his own fiscal rules.
He has failed to meet his promise to cut debt as a share of GDP this year, and has also failed to impose his target cap on welfare spending by u-turning on his tax credit cuts policy last year.
So that’s two out of three targets missed. The third is a commitment to running a surplus by 2020 – a particularly fragile goal, considering economic and fiscal realities laid out by the IFS.
Shadow chancellor John McDonnell has responded to Osborne’s failure to meet his targets by accusing him of using “creative accountancy” to hit his surplus target, and adding, “I just think today demonstrates his fiscal rule has failed.”
It is thought that Osborne’s reputation rides on running a surplus by 2020, and that he has damaged his credibility already by breaking his own fiscal rules.
But this is nonsense. There are two reasons why we shouldn’t believe Osborne’s broken promises matter.
The first is that it won’t affect his electoral chances. Osborne has broken promise after promise, and the country voted for him anyway.
This is a headline from 2012 – identical to the headlines we’re reading now on Osborne’s eighth budget four years later:
And he did indeed break his fiscal rules. In 2010, the Tories pledged to “eliminate” the deficit by the end of the parliament. Osborne backpedalled quite significantly on this promise throughout the last parliament, spectacularly missing his target in 2015 (the deficit was just under 5 per cent of GDP last May).
But no one, aside from the more austere element of the Tory party, and Labourites complaining about Tory lies, really cared. The general election result proved that.
Secondly, it’s a bit of a pyrrhic victory to call Osborne out on breaking his promises. A worse fate for the country than a politician watering down his pledges is if he actually followed through with them when they weren’t viable.
Cutting as hard and fast as Osborne had promised in 2010 would have been economically disastrous – and incredibly painful (well, more painful than it already was). So he didn’t do it. He did the same by slowing the pace of the £12bn welfare cuts in last year’s Budget – he changed his mind on how fast he was going to make such savings, spreading them out over a longer period.
Equally, he u-turned on his proposal to cut tax credits. In this case, the motive was political, rather than economic expediency, but the result was the same: slightly less damaging policies from the Chancellor than first threatened.
Politicians should neither be encouraged to lie nor to set silly, arbitrary targets. But if they break promises when it makes sense (socially and economically) to do so, then they will get away with it. And so they should.