A growing economy, partially repaired government finances, and inevitably a pitch to voters to be allowed to go on doing the job. Leave that last bit aside – because who knows what will happen come 7 May – and focus on the first two. Is it really credible that the UK will become the largest economy in Europe? And how much of the repair job has really been done?
All economic forecasts have to be viewed with caution, but the ones set out in the Budget, which come from the Office for Budget Responsibility rather than the Treasury, are actually rather unambitious. Growth is expected to run between 2.3 per cent and 2.6 per cent through 2019, which is less than many other forecasters think will happen, certainly in the early years. It is lower, for example, than the forecast of the Bank of England and Goldman Sachs. But given the muted outlook for growth in the eurozone, and in particular the region’s low fertility rates, the vision that the UK economy will pass Germany in another 15 or 20 years is not an absurd one. It would, however, be a different Britain. So the Chancellor cannot be accused of being over-optimistic about growth, at least for the next two or three years. The OBR does not forecast when the global economic cycle might eventually turn down, but then official forecasters never predict recessions, do they?
Nudging the economy back to growth has been a solid achievement and the Coalition deserves credit for that. It did so in the face of strong opposition, not just from rival politicians but from some supposedly independent economists, and that opposition has been proved wrong. If we continue to get reasonable growth, and it looks as though we will, how far has the second challenge that faced the Chancellor – getting the deficit under control – been met? The idea that half the job has been done, with the deficit coming down from 10 per cent of GDP to 5 per cent, is a good place to start. Unfortunately, that 5 per cent figure is still higher than that of any other G7 country, bar Japan. Germany is running a budget surplus. True, the Coalition had a bigger mountain to climb than any other government, again bar Japan, but the other half of the job still has to be done.
How, you might wonder, is it that the deficit is 5 per cent of GDP in the current financial year and projected to be 4 per cent in 2015-16, and growth is less than 3 per cent, yet the total debt is forecast to fall as a percentage of GDP this coming year? The explanation is that the government plans to sell a lot of assets, such as the shares in Lloyds Bank and so on. As a result, the headline debt number as calculated in our national accounts will indeed fall, though under the wider Maastricht definition it goes on climbing.
So there is a bit of creative accounting there. If that just about squeaks by, the projections for public spending in the coming parliament really should not. The OBR picked up the point that there is “a sharp acceleration in the pace of implied real cuts to day-to-day spending on public services and administration in 2016-17 and 2017-18, followed by a sharp turnaround in 2019-20”. In other words, a big reason why the Chancellor was able to say the squeeze on public spending would end a year earlier than previously stated was because it would be fiercer in the meantime.
That leads into a debate which we are going to hear much more in the coming weeks – the appropriate size of government. The target here is a floor of 36 per cent of GDP. That is not the size of government in the 1930s, and to claim that is silly. Government spending in the 1930s was 25 per cent of GDP. What it is, however, is government of the size it was in the late 1950s under the Conservatives and the late 1990s under Labour. The balance of spending is different: less on defence and more on health, for a start. But you have to ask whether government of that size – the early Gordon Brown period – is big enough to provide the services we want. If not, are we prepared to pay more tax? Or, with a real and continuing efficiency drive, might 36 per cent of GDP be enough to deliver as good or better services as the government can with, say, 38 to 40 per cent of GDP? If that is a question for the next election, there is a wider one that we will face over the next couple of decades. It is: what sort of country do we want to be?
George Osborne talked about Britain walking tall. “The government’s ambition is to build a stronger economy and a fairer society, and for the UK to become the most prosperous major economy in the world by 2030.” Sound vaguely familiar? Try this: “The central purpose of this Budget is to ensure that Britain is equipped to rise to the challenge of the new and fast changing global economy. Not just a few of us, but everyone... The dynamic economies of the future will be those that unlock the talent of all their people, and our creativity, our adaptability, our belief in hard work and self-improvement, the very qualities that made Britain lead the world in the 18th and 19th centuries are precisely the qualities we need to make Britain a strong economic power in the 21st century.”
That was Gordon Brown in his first Budget in 1997, and in many ways he was right, just as Osborne is now. But a vibrant, fast-growing economy brings pressures as well as benefits. It brings immigration, for if you are successful you attract hard-working, ambitious young people. It brings physical change to the environment, for you have to build more homes, roads and other infrastructure. It brings change in the balance of the economy as old industries decline and new ones spring up. It brings insecurity because people have to adapt to several different jobs in their lifetime. And some people, those who are less talented, creative and adaptable – or simply less lucky – will struggle with it.
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