Autumn Statement: Bad numbers that may get even worse

Osborne’s bid to balance the books is still failing, says Ben Chu – and only the optimistic forecasts of the OBR are keeping him afloat

Click HERE to view graphic

Q. So what was the verdict on the public finances?

A. Robert Chote and his team at the Office for Budget Responsibility (OBR) took a fresh look at the Government’s tax and spending plans and saw a large hole. Stripping out various one-off accounting changes, the OBR forecasts that the Treasury will now have to borrow about £100bn more over the next five years than it expected at the time of the March Budget. And this extra borrowing means the Government is no longer on course to hit the second part of George Osborne’s fiscal mandate, namely to have the national debt falling as a share of Gross Domestic Product in the year 2015-16. The OBR now expects the national debt to be rising in that year and not to decline until the following year. The OBR did rule that the Chancellor remained on course to hit the first part of his fiscal mandate, which is to eradicate the structural deficit (the part that does not disappear when growth returns) within five years’ time. However, he was only able to do so by pencilling in a further £4.9bn of austerity to take effect by 2017-18.

Q. Why have things got worse?

A. Because the UK’s growth outlook has deteriorated. In March, the OBR expected the UK economy to grow by 0.8 per cent over 2012. Now it expects a 0.1 per cent contraction. In March, the OBR expected 2 per cent growth in 2013. Now it sees an expansion of just 1.2 per cent. The outlook is bleak further forward too. Nine months ago the OBR thought the economy would grow by 3 per cent in 2015 and 2016. Now it thinks growth in those years will be just 2.3 per cent and 2.7 per cent respectively.

Q. Why is growth so weak?

A. The OBR blames export markets, mainly the continuing uncertainty across the channel. It said the eurozone debt crisis would “constrain UK growth for several years to come”. The forecaster also said that higher than expected inflation was responsible for the bleaker outlook. It also warned that higher prices would squeeze households’ spending power, hurting the all-important retail and services sector. The Labour Party says the Government’s cuts to infrastructure projects, such as school and road building, since June 2010 have contributed to the economy’s weakness by sucking demand and spending power out of the economy. The OBR does not buy agree. But the Chancellor apparently sees some merit in it because he has increased capital spending over the next two years by £5bn. The OBR says these measures will give only a “small boost” to growth.

Q. What does this all mean for us?

A. First it means more cuts. Welfare benefits will also be limited to a 1 per cent rise for the next three years, below the expected rate of inflation. The Chancellor did not outline where most of his cuts in future years will fall. But according to the Social Market Foundation think tank the Chancellor’s plans mean Government departments are now facing real terms budget cuts of 19 per cent between 2014 and 2018 (presuming the ring-fence around health, education and international development spending remains in place). Lower growth and more austerity mean more job losses, according to the OBR. The employment market has actually done better than the OBR expected in March. Nine months ago the watchdog expected the number of people in employment to flatline at 29.1 million this year. But, in fact, it has risen to 29.6 million, despite the shrinking economy. Yet the OBR does not expect this to last. It said yesterday that 1 million jobs would be cut from the public sector by 2018, up from the 730,000 expected in March.

Q. But should we believe what the OBR says?

A. As the final chart shows, the OBR has a pretty lamentable forecasting record. In June 2010 it said that growth in 2012 would be 2.8 per cent. Now it expects a contraction of 0.1 per cent. Almost every time the OBR has produced fresh forecasts of the economic outlook it has had to downgrade its previous, over-optimistic, view. Given this record, some are starting to question the organisation’s view. But the OBR’s forecasts cannot be ignored. A central part of its job is to estimate the size of the structural deficit. And the Chancellor has to commit to fill this gap in order to meet his fiscal mandate. But how big is this structural deficit? There is considerable disagreement among economists. And there is no way of knowing for sure. The OBR said yesterday that its model suggested that structural deficit was larger than it previously thought. But it chose to ignore its model and pick a lower number, thus sparing the Chancellor from the need to promise to inflict even more austerity on the rest of us.

Have you tried new the Independent Digital Edition apps?
ebooksAn unforgettable anthology of contemporary reportage
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave long-running series
Life and Style
Couples have been having sex less in 2014, according to a new survey
Holly's review of Peterborough's Pizza Express quickly went viral on social media
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

KS1 Primary Teacher

£100 - £150 per day: Randstad Education Leeds: Qualified KS1 Supply Teacher re...

KS2 Teaching Supply Wakefield

£140 - £160 per day: Randstad Education Leeds: Qualified KS2 Supply Teacher r...

Year 1/2 Teacher

£130 - £160 per day: Randstad Education Leeds: Qualified KS1 Teacher required,...

Primary Teachers Needed for Supply in Wakefield

£140 - £160 per annum: Randstad Education Leeds: Qualified KS1&2 Supply Te...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam