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.