Hamish McRae: Osborne can say what he likes, but this crisis is beyond his control


Related Topics

The slog ahead has become longer. We live in a world where the mathematics of public finances dominates everything and where the scope for politicians to do anything other than press on cutting their budget deficits is just about zero.

And so it was with George Osborne yesterday. He could put a brave face on it, celebrating that the UK has such credibility that it can borrow as cheaply as Germany, maybe even more so judging by the rates yesterday. He could trot out a string of infrastructure projects designed to give a spur to growth. But the harsh reality is that the big numbers for growth and the deficit are materially worse than back in March, and that our national debt will peak at least a year later and close to £150bn higher than previously expected. All that, by the way, is on the assumption that Europe gets its act together and manages to save the euro.

Essentially we learnt two new things yesterday and had two bits of course correction in response to those. The first new bit of information was that the economy will flirt with recession through the winter. We pretty much knew that already but having the Office for Budgetary Responsibility confirm this does at least clarify things. The second new information follows on from this. Because the recovery is running a year later than expected, the correction of the budget deficit has been rolled back a year, too. The peak debt-to-GDP ratio is now expected to be nearly 80 per cent instead of a bit more than 70 per cent and the debts will barely have begun to fall by the end of this parliament. Public finances will remain under huge pressure for the rest of this decade.

In response, the Chancellor has accepted this slower-than-expected correction. You could say it is still Plan A rather than Plan B, but it is Plan A done quite a lot more slowly. Secondly, within these big numbers there has been a modest switch from current spending, that is spending on the cost of running the Government and its services, towards spending on infrastructure, the roads, the railways and so on. In the total scheme of things the switch is tiny: between £1bn and £1.5bn a year in the context of total spending of some £650bn a year. But if it pulls in more funds from the private sector and from overseas investors then it may help a bit.

It was a mark of the tight spot in which George Osborne finds himself that he should bang on about the huge boost to the country's infrastructure from his National Infrastructure Plan when all he was doing was to switch less than 0.5 per cent of public spending from one pot to another. As for the rest, the holding down of fuel prices, the further curbs on public sector pay, the additional hit to the banks and pension funds – all this may in political terms gain or lose a bit of traction but in economic and financial terms it is detail. The harsh mathematics of how much tax is coming in and how much he can safely borrow dictate everything. And do not take too much notice of changes announced in the pension age that are supposed to start in 2026 to 2028. A lot will happen between then and now.

So what will really matter? One is retaining the trust of global savers.

A point of criticism made by Ed Balls was that the Government was "offering more of the same". He is right of course. But listening to Osborne's speech and, even more so, reading the report of the OBR, you see that is all governments can do – offer more of the same. Look around Europe. There is no alternative to balancing the budget, for governments that fail to do so are punished with the full ferocity of financial markets in a funk: markets can treat errant governments even more viciously than voters. At least five governments in Europe have fallen as a result of market pressure on their national finances. The mechanisms that politicians use to establish and maintain credibility – for example Gordon Brown's "golden rule" or Osborne's OBR – are a means to an end. So far the Coalition has managed to retain trust despite Britain's weak financial position and despite the further deterioration revealed yesterday.

The other thing that will matter is luck. The Coalition has been unlucky because the start of our long trudge back to solvency has been slowed first by the headwinds of high energy and commodity prices and now by the troubles in Europe. We cannot assume our luck will turn. The situation in Europe may get very nasty indeed.

But luck does tend to even out over time and we have bought ourselves more time. We could probably slow the pace towards a balanced budget even further if that were clearly the result of things beyond our control. Let's hope we don't have to.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

Commercial Litigation Associate

Highly Attractive Package: Austen Lloyd: CITY - COMMERCIAL LITIGATION - GLOBAL...

Systems Manager - Dynamics AX

£65000 - £75000 per annum + Benefits: Progressive Recruitment: The client is a...

Service Delivery Manager (Software Development, Testing)

£40000 - £45000 per annum: Ashdown Group: A well-established software house ba...

Day In a Page

Read Next
The economy expanded by 0.8 per cent in the second quarter of 2014  

British economy: Government hails the latest GDP figures, but there is still room for skepticism over this 'glorious recovery'

Ben Chu
Comedy queen: Miranda Hart has said that she is excited about working on the new film  

There is no such thing as a middle-class laugh

David Lister
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears