Did Osborne miss a trick at the Spending Review?
It wouldn’t be a George Osborne speech in the House of Commons unless there was a dramatic headline, and he duly obliged at Wednesday’s Autumn Statement with a rubber-burning U-turn on his plans to slash £4.4 billion from the tax credits bill. Indeed, he floored all and sundry by defying expectation that the income threshold cuts would be “phased in” by instead scrapping the plans altogether.
It set the tone for what has been widely termed a ‘Blairite’ Spending Review, which was characterised more by unexpected boosts in spending and widespread sparing of the axe. Departments such as transport, sports and culture, energy and the Treasury would clearly argue to the contrary, while students, civil servants, landlords and second-home buyers will be reeling. However, the long and short of the numbers bandied about in essence brought an end to austerity with spending actually increasing; this at a time when Government debt is reportedly surging by £1.5 billion a week, with overall debt £550 billion higher than it was five years ago.
The battle of politics and economics
Politics inevitably meddles with economic ideals, and rarely have external global crises dictated to such an extent the requirement for spending in certain areas. But has the biggest political driver of all in this one been Osborne’s poorly-veiled desire to take over at No 10 in 2020?
Put in context, this was perhaps the best chance of all for the Chancellor to make the ‘tough decisions’ needed to balance Britain’s books. The Labour Party is, at best, in a state of transition, and with almost five years to go until the next election, the time to lay down the marker was surely now. Memories are short, and there will be ample opportunity in the coming years to make the sort of voter-appeasing Budget speeches that could put him in pole position to succeed David Cameron.
Most importantly, it could have secured his legacy as a Chancellor who brought long-term economic stability to a country that currently is still spending more than it earns.
Not all bad
Of course, it is easy to criticise in the absence of offering alternatives, and the only racing certainty of any forecast is that it will never please everyone. In fairness too, there were also some commendable announcements to emerge. The Chancellor was true to his word on the state pension and the NHS, while expected cuts to policing were avoided.
Far-reaching cuts in general were scrapped owing to a £27bn windfall courtesy of forecasts by the Office for Budget Responsibility, which suggested a better-than-expected future for tax receipts. And despite this, public spending is still set to fall to 36.4% of national income by 2021, which is a significant drop on the current figure of 39.7%.
But that appears to be where the fiscal discipline ends. In real terms, overall Government spend is set to rise by 0.8% over the next five years, while the shift in approach from austerity to increased taxation is underlined by projections on tax take rising by 2% of GDP by 2020/21. In terms of the national debt, this plan represents a gamble of sorts given its dependency on external factors like the volatile global economy, and (slowing) medium-term growth.
A chance gone a begging?
Not many of us are privy to the inner workings of what must be a frighteningly complex maze to negotiate, and we at Lending Works are no exception. But we do know a thing or two about debt and responsible borrowing, and the same principles apply whether it is at an individual level, company level or national level. Our debt is unquestionably the great Achilles heel of Britain’s economy, and while it is true that interest rates are currently low and that the overall picture is stable, this is all subject to change in an edgy global climate, and our high level of borrowing leaves us greatly exposed in the event of a downturn.
Let’s hope such things don’t transpire, let’s hope that more of those who need a helping hand from Government receive it, and let’s hope that in amongst it all, the fiscal deficit is indeed eliminated. But for this to happen, a lot of things need to go perfectly. And if they don’t, Osborne may well look back on this Autumn Statement – one where his party has rarely been in a greater position of strength - as an opportunity missed to deliver economic security to our country.
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