The Tories were desperate for Barack Obama to endorse the coalition’s deficit reduction plan, but at today’s press conference he didn’t even come close. In response to a question on the subject from ITV’s Tom Bradby, the US president emphasised that “every country is different” and praised the way that “concerted action” by the UK and the US had “yanked the world economy out of recession” – an implicit endorsement of the last Labour government’s fiscal stimulus.
Obama, who noted in his introductory remarks that the pair come from “different political traditions”, went on to stress the need to sustain investment in “education, science, technology and infrastructure”. For the US president, unlike the coalition, economic growth is a precondition of deficit reduction, not a hoped-for outcome.
It was only towards the end (Obama’s answers were incredibly long-winded) that he made a token reference to the need for governments to “live within their means” before adding that the “sequencing and pace” of deficit reduction would be different in each country. It wasn’t what Cameron and George Osborne wanted to hear.
The irony is that there are some significant similarities between Obama’s deficit reduction plan and the coalition’s. As I noted in a recent Data Hound column, under the US president’s plan, public-sector borrowing will fall from 10.9 per cent of GDP this year to 3.3 per cent in 2016. The coalition aims to reduce borrowing from 9.9 per cent of GDP this year to 1.5 per cent in 2016.
Thus, although the total fiscal consolidation planned by Osborne remains the largest, the difference is not as great as some imply. In addition, Obama plans to achieve three-quarters of the US deficit reduction through spending cuts, including lower debt interest payments, and the rest through tax rises, in a ratio similar to the coalition’s 73:27 split.
But the crucial difference is that while the US economy has grown by 1.2 per cent in the past six months, the UK economy has flatlined. The strength of the US recovery means that Obama can afford to reduce the deficit without fatally weakening growth. The same, alas, cannot be said of Osborne’s Britain.