Published on 28 Mar 2011

OsBallism: The Government and opposition are closer than they think

The Government believe Labour’s fiscal plans would leave us bankrupt. Labour says that the Government’s plans are “savage austerity” that are sending us back towards double dip. The truth right now is that though Osborne and Balls are both playing up the differences, we are far closer to OsBallism.

A funny thing about the extra borrowing that George Osborne announced: it has brought both parties fiscal plans rather closer together. I’m going to use Alistair Darling’s Budget last year as a rough proxy for the as yet undetailed Balls/Miliband plan (it’s not a perfect comparator but it’s the best we have, it’s what they talk about, so stick with me). And last week’s Budget is clearly the best numbers we have for the Coalition.

First, a forecast for £44bn extra borrowing was announced by George Osborne at the Budget, partly as a result of weaker growth and partly higher inflation.

Look at these figures for the deficit forecast made by Osborne (vs Darling a year ago) 10/11: 9.9 per cent v (11.1 per cent). 11/12: 7.9 per cent v (8.5 per cent). 12/13: 6.2 per cent v (6.8 per cent).  13/14: 4.1 per cent v (5.2 per cent).

Actually you could make a case for comparing Budget 11 figures to the Sir Alan Budd’s OBR June assessment, which includes the fact that the public finances were getting less bad and includes no Coalition decisions, bar the £6bn in cuts made in May. It also has lower growth projections than assumed in the Darling Budget. So Osborne now (versus Osborne inheritance from Labour): 10/11: 9.9 per cent v (10.5 per cent). 11/12: 7.9 per cent v (8.3 per cent). 12/13: 6.2 per cent v (6.6 per cent). 13/14: 4.1 per cent v (5 per cent).

The comparison between Labour and Coalition deficits are not transformational differences. They are different flavours of the same story, and the different stories are getting closer together. (David Smith, my counterpart at the Sunday Times, pointed out on twitter [@dsmitheconomics, worth a follow] “Don’t forget Darling was helped by punchy Treasury forecast on growth (3per cent-plus) and inflation (low).”) Clearly these are not precisely like-with-like comparisons as growth is a little bit weaker and inflation higher than forecast, but I stand by the broad picture. After the spending review the Coalition had shrunk the Darling deficit by one percentage point or more in each year from this year, now it’s more like half a per cent.

The biggest difference is on the national debt. Under Darling’s Budget it was heading for 74.5 per cent of GDP in 2013/14 and still rising. Sir Alan Budd downgraded this a touch thanks to last year’s buoyant tax revenues. After Budget and Spending Review, in November, national debt was forecast to peak at 69.7per cent in 2013/14. Yet now, on the back of slower growth and higher inflation, the national debt still peaks in 13/14, but at 70.9 per cent.

Read more: Spending cuts check special report

I point out these numbers as an antidote to the current debate. Clearly the Government would say it shows the absurdity of the Labour attempt to muscle in on anti-cuts protests, when their plans imply cuts that are only slightly less harsh, which so far they have chosen not to fess up to. But the Opposition could clearly argue that it is nonsense to say that the difference between its plans and the Government’s is some Greek-style bankruptcy. But both parties can’t have it both ways.

I leave you with two off-the-record anecdotes, spoken directly to me, from people who really matter that have echoes of OsBallism.

1. A leading official who has huge reason to care about the credibility of fiscal plans, said that Darling’s plan was “fine” for markets, and just needed to be “fleshed out” in detail.
So would the Opposition benefit from more detail, (which frankly would be more detail than we got from George Osborne at this stage of his shadow Chancellorship)?

2. An important Cabinet minister, a few weeks ago: “Synthetic differences have been created about those two competing [deficit reduction] plans. Getting rid of the deficit in 7/8 years: I’ll tell you what you can’t do that uncontroversially. Labour’s plans: 20 per cent cuts in the budgets where we are imposing 25 per cent cuts, so yes that is 5 per cent more. But the notion that we are doing something dramatically, radically, violently different from what was planned is a complete rewriting of history.”

I don’t want to overstate OsBallism. There are differences. The polls are showing that the public is responding to the “slower cuts” message that Balls has successfully conveyed. But there are political and economic pressures pushing these big numbers together.

For now Osballism means I’m as equally sceptical of “we were going bankrupt” as I am of the complaints about “savage austerity”.

* This is the first of three posts reflecting on nooks and crannies of the Budget debate. “Because we’re Net Worth it” will look at how we measure our fiscal health. And I’m doing a piece about why past Growth Plans have failed.

UPDATE: Sorry, slight typo on the 13/14 deficit number. Now correct.

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12 reader comments

  1. MikeB says:

    The difference is in the implementation. The coalition is much more likely to carry out its plans than labour.
    Why?
    1) The conservatives have done it before (got out of control public finances under control).
    2) Labour would not have the nerve or the muscle to implement their program as they are dependent upon the support of the unions. Their backbenchers would not stomach it either.
    Of course the savings plans are partly ideological, what conservative could stand seeing the state consume 48% of the country’s output. Don’t forget, all the public sector and that includes the BBC are financed by taxes paid by the private sector (up in the last 13 years) and government borrowing (and that has gone up a lot in the last 13 years).

    1. Saltaire Sam says:

      Mikell, I’m always amused at the argument that the public sector is paid for by the private sector.

      It ignores the fact that the private sector benefits from the public in many ways:

      1 It is a customer to whom the private sector sells goods and services (about to expand in terms of the NHS)

      2 It pays for much of the infrastructure on which the private sector depends and on which it keeps lobbying for greater spending

      3 It educates the workforce for the private secotr

      4 It keeps that workforce healthy

      5 And by the way, people in the public sector also pay taxes and are consumers of goods and services.

      The balance between the two would be far less of a problem if those in the private sector who dodge contributing their share of taxes stopped being so greedy and thinking they have the right to live so much better than the rest of us.

      We are told they provide the jobs and create the wealth, but they don’t do that out of charity, they do it because without ordinary people doing the work all their grand schemes are worth zilch.

    2. Andrew Dundas says:

      Conservative actual spends were close to 50% of GDP in the mid ’80s. Largely because of policy-induced stagflation that created huge numbers of unemployed and early retired workers claiming benefits.
      But no one thought that high percent odd at the time. Largely because the media preoccupation was with ‘inflation’ in the 1980s: that’s wage inflation not prices.
      Truth is, the proportion of public spending is not really important at all. Because, as Nigel Lawson said quite clearly at the time: “our credit is excellent and we can fund it.” [As it remains today]
      The current obsession with the size of the overall deficit is just a fashion fad. In a few years time we may become obsessed again with the balance of payments, or chronic low growth.

    3. Kes says:

      Nice to see “Andrew” back with his Labour guff! Picking statistics that suit doesn’t help. There are as any statistics that disprove your view. Fact is that Labour mismanaged the economy to a dangerous degree. The public sector burden is, actually, very important because any public sector employment is a drain on the pot of cash we have, while private sector employment is a net contributor.

      We ahve a huge and growing level of debt, which has to be reduced to achieve economic health. To do that a deficit has to be turned into a surplus. hardly a fad (even Keynes knew that).

      The sluggish economy is the result of many years of mismanagement, both here and globally. It took Brown many years to wreck the economy he inherited. It will take many years to repair teh damage. That is the sadness: that most people don’t yet understand how hard it will be.

      Don’t blame Osborne for Brown’s idiocies.

  2. Ray Turner says:

    Osballism…?

    Why do we have to have these ‘ism’ labels to describe a political policy/strategy. I’m not sure it helps.

    I’m quite happy with the idea that the oppositions solution to our economic woes is all Balls…

    1. Peter Stewert says:

      The ‘ism’-ism likely stems from the same source that habitually adds ‘gate’ to anything even slight controversial. However, the thing that worries me is that the Brangelina (the merging of Brad Pitt and Angeline Jolie) seems to have started creeping in with the coallition, e.g., Davick Camalegg both lead the coalliton.

  3. Philip says:

    It’s one of the main reasons why the public have always distrusted politicians. They cannot bring themselves to be open and honest about their policies. Everything has to be dressed up & spun. Wouldn’t it be better to have had an open & constructive debate involving all parties on WHERE the spending cuts should be taking place? (at least up to an agreed level – if the Coalition went beyond that, that would end any debate at that point). If they could agree – fine. But at least the attempt would be better than this posturing.

    1. Andrew Dundas says:

      Maybe, Philip, an overall cut isn’t truly necessary anyway? Maybe we should simply be optimising public service provisions as the needs of our people change?
      Maybe a very large growing economy is a better credit risk than one that is stagnating? If Japan can run up an overall deficit of more than twice its annual stagnant income (compared with our puny 80%) and still sell its Bonds to its own people, we could do the same with a resumed growth in national income?
      Asking political leaders for their plans for “cuts” seems to me to be just the sort of pejorative agenda you’re complaining of.

  4. MikeB says:

    Saltaire Sam
    I agree with your points, however, the taxes and NIC that the public sector pay are deducted from their salaries to give a “net” cost. It is this net cost which is funded by private sector tax receipts or additional borrowing by the government of the day.

    Private sector businesses with only public sector customers are of course as dependent upon the state as the public sector.

    I am not against the public sector, just the massive expansion in the last 10 years. As a rule the public sector tens to be more inefficient than the private sector and this is therefore a concern to the tax payer.

    I suspect that many in the public sector are anti capitalist, which is a worry considering.

    1. Charles Jurcich says:

      You said earlier that government borrowing is financing government spending – it isn’t.

      When govt issues debt, it is auctioned, and whoever buys the debt “pays” for it with reserves, not money. The BoE converts these reserves into a liability in the Treasury account, so there is no transfer of either money or reserves to the treasury – so why do they issue the debt?

      Answer, they have to issue the debt to drain excess reserves so they can maintain a positive bank rate – so it is used to make monetarism work, not to finance govt deficit spending – the govt has NO financial constraint, unlike the private sector.

  5. c says:

    It’s a sad reflection of the fact that we have neither an effective government nor an effective opposition in these days where the banks and markets, quite apart from being immune from public opinion & governmental control or regulation, might just as well be determining economic policy themselves as the principal beneficiaries.

    At least the sameness of the focus-group driven policies of the last decade were somewhat more benign to the general populace.

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