Osborne’s target has been reached, albeit two years late. Now is the time to make the case for renewed public spendingby George Magnus / March 5, 2018 / Leave a comment
Chancellor Phillip Hammond will have some good news to spill in next week’s Spring Statement. Recent trends in tax receipts and public spending show the budget balance, excluding pubic investment, in surplus. George Osborne’s 2010 strategy has finally come good, albeit later than he predicted. Many took the news as an opportunity to look back and pillory Osborne for the effects of austerity. But it is better to focus on what to do with the windfall improvement now, and on what we should do to secure the stability of public finances in the future.
The government’s net borrowing in 2017/18 could be a bit less than £4bn. To put that in perspective, that’s more than £10bn better than estimated last November, about £6bn better than in the previous fiscal year, and the lowest since before the financial crisis. The government will probably want to make hay out of the small surplus in the “current” budget (excluding public investment), which has emerged two years later than planned.
To achieve that, George Osborne raised VAT and kicked off a squeeze on public spending, which has fallen sharply in real terms. The sharpest cuts in public spending occurred in the first two years of the coalition government, tapering a bit afterwards. In the decade to 2020/21, on current plans, there will have been real cuts of between 10 and 40 per cent in all major spending departments, except for health and overseas aid. Even so, NHS spending as a share of GDP is slightly lower than it was before the financial crisis.
Osborne’s defenders remind us that at one time the government was running a “current” deficit of £100bn, which with public investment added in was near to £150bn, or 10 per cent of GDP. They argue the government had no choice in its actions, which is not strictly true. There were important timing and distributional choices. In other words, choices over the point at which to begin serious deficit cutting—given that the economy was in poor shape with much unused capacity—and how to share the burden.