3 Dec 2014

On track to smallest state since 1930s? Not if Vince can help it

Under the government’s current plans, the OBR projects, the public sector share of GDP will shrink to 35 per cent by 2019-20, the smallest state in percentage terms in 80 years.

One Treasury source said this was “just where the graph lines happened to end up,” implying there was nothing ideological about this and no champagne popping pencilled in for the big day five years off. You could imagine George Osborne giving a more enthusiastic version of events to the Conservative backbench committee.

Vince Cable told me he thought that level of state spending was not sustainable to support public services. And now we hear he’s been worried about this OBR report for some time – see Patrick Wintour’s story here.

The OBR also points out that at the end of this parliament there will be 52 per cent (p 147, box 4.6) of consolidation still to be done. The coalition likes to use a different metric saying there’s about “one third or a quarter” (Danny Alexander at the National Infrastructure Plan launch yesterday) of consolidation still to come.

What he and the rest of the Treasury say they are referring to is cuts still to be identified amounting to one third or a quarter. Even that might be disputed by some.

George Osborne today increased the consolidation still to be identified in years two and three of the next parliament from £25bn to £30bn. He did this, allies said, because a revision of the numbers so far achieved suggested he was doing about £1bn a year better than planned on cuts so he might as well keep that up.

The chancellor said he would be able to find £5bn in fresh tax avoidance clampdowns to make up for the £5bn hike in planned consolidation but there were no details. The OBR might think that shows quite a lot of chutzpah when they (Box 4.2, p 105) are reminding the government that even specific tax avoidance measures are “subject to significant uncertainty”. They presumably wouldn’t be too impressed by completely unknown tax avoidance measures.

The OBR extrapolates that assuming in real terms flat spending in 2019-20 the government will have an additional consolidation in that year of £14bn. It also in table G p149 maps out how unprotected departments could face cuts of more than half in their budgets in the next parliament, something the IFS will no doubt tomorrow say is pretty implausible.

The stamp duty measures were a Brownian trick to try to jump on the opposition party’s terrain. The Treasury didn’t have to make this policy cost it anything, it could’ve made it revenue neutral. But that would’ve involved hurting more than 2 per cent of the population. They seem to have hit upon the 2 per cent number or thereabouts in terms of how many people they were willing to hurt and then work backwards.

As for the missed target on deficit reduction, here’s a quote from the 2010 March budget debate before the election. David Cameron was attacking Alistair Darling for poverty of aspiration in his economic planning:

“The chancellor repeated his hope to halve the deficit by 2014. Let us be clear about what this means. It means that in four years’ time we will have a deficit almost as big as when Denis Healey went to the IMF in the 1970s … this is completely inadequate.  … The lights are flashing and the alarm bells are ringing, but he is ignoring them and doing nothing for this country.”

Alistair Darling seemed to remember it and popped up in the Commons to ask why the chancellor was now boasting about a halving of the deficit he used to mock.

The promise in principle to devolve corporation tax powers to Northern Ireland was tantalisingly unclear. It looks like a bargaining weapon held in reserve for the post-2015 election period. The SNP said it was outrageous to devolve to Northern Ireland without devolving the same tax to Scotland.

Follow @GaryGibbonBlog on Twitter

Tweets by @garygibbonc4