The worst is far from over – with years of cuts to come to combat rising tide of national debt, writes Bill Jamieson
So, the gruelling climb is behind us. Sunny uplands lie ahead. Businesses can get a boost to investment and savers and pensioners are given a big break at last. There could be no mistaking the upbeat content and tone of Chancellor George Osborne’s Budget yesterday.
But this was a Budget with dark matter at its heart. How easily appearances deceive when awkward figures are pushed from central view. The darkest days, far from being left behind, still lie ahead. And a reckoning there must be.
Having covered Budgets since the early 1970s, I have learned to be circumspect about instant judgments. Is this too cautious? When was the last time Britain could be said to have had a successful chancellor?
Over these years we have had transformative Budgets, bold new measures, forecasts of tumbling deficit and debt, upbeat growth projections and “millions taken out of tax”. But, with a few exceptions, most of them have been forgotten or superseded. Few Budgets have wrought the transformation claimed of them. Confident forecasts made about upward growth and downward borrowing quickly degrade after the immediate year ahead. Most chancellors have limped into history with tarnished reputations.
For a decade, Gordon Brown was viewed as an unassailable chancellor, with those long trills of impressive forecasts ahead. But then came The Crash. He had promised to end boom and bust. But he will be remembered for the bust that followed the boom.
In the 1980s, Nigel Lawson could claim to have been a transformative chancellor. He slashed the top rate of tax and unleashed a home ownership borrowing boom. It ended in bust. Geoffrey Howe sought to break free of the troubles of the late 1970s. But his 1981 Budget worsened a recession that flattened manufacturing industry. Denis Healey was ground between currency flight, a raucously Leftist Labour Party and the IMF. In 1979, his government crashed to defeat. Tony Barber, in the early 1970s, took flight on a breath-taking dash for growth. His experiment crashed to earth, taking his government with it.
How might Osborne compare in this troubled pantheon? Tipped as a potential Conservative leader, his Budget yesterday could claim a marked improvement on his 2010 crisis inheritance. The budget deficit has (finally) been brought lower, from £156 billion in 2010-11 to £108bn this year, and is on course to record a surplus – four years ahead.
As for the economy, barely a week now goes by without further evidence of strengthening recovery, falling unemployment and growing business confidence. There were caveats about “job not yet done” and impressive measures to help business investment and exports. But the Chancellor’s finest moment yesterday was being able to cite the Office for Budget Responsibility forecast of growth of 2.7 per cent this year – the biggest between-Budget forecast upgrade for 30 years and the fastest upturn of any major industrialised economy.
Yesterday’s Budget could thus be seen as the latest staging post in an arc ranging from austerity and recession to recovery and upturn – and from Budgets focused on economics to ones more coloured by politics. Yesterday’s was marked by childcare support and tax allowances focused on the lower paid, topped off with a freezing of whisky duty, a penny off beer and a cut in bingo duty – quite a journey from those backfiring taxes on caravans and pasties.
For a Chancellor constantly portrayed as the champion of austerity and the hammer of “hard-pressed families”, Osborne was never going to be one of our most popular finance ministers. Labour has railed at his spending squeezes. And in presiding over the rise in higher rate taxpayers to more than four million, the Daily Mail despairs. Yet, for all his unpopular measures, he is faring better in public ratings than predecessors who faced a less problematic inheritance.
Latest polling figures by YouGov show that while the Conservatives still trail Labour by a wide margin, they lead Labour on the economy by eight percentage points. Some 33 per cent think Osborne is doing a good job as Chancellor, up from 26 per cent in December, while 39 per cent think he is doing a bad job – down from 46 per cent.
For all the tough decisions on public spending – indeed, arguably because of them – 35 per cent think he makes a better Chancellor than his Labour shadow Ed Balls. And over the past year, 41 per cent think the economy has improved.
Many post-war chancellors would envy Osborne such ratings. But it has not translated into surging support for his party. Falling real incomes have hurt. When people were asked how they feel about their own finances, only 16 per cent feel better off than a year ago, and 37 per cent feel worse off.
Looking forward, there is the same divide between perceptions of the economy as a whole, and personal finances. Only 20 per cent expect their own finances to get better and 35 per cent to get worse.
What of the dark side to yesterday’s Budget? There are big questions over how effective it will prove to be in boosting exports and addressing the productivity problem. But the black cloud for me lies somewhere else. It is the continuing rise in government debt: the greatest and most troubling “no-no” for discussion in Westminster – and Holyrood – today.
When Osborne became Chancellor, government debt, known as public sector net debt, stood at £830bn or 56 per cent of GDP. By 2014-15, this figure will hit £1.35 trillion, a rise of £520bn over his chancellorship – more than Brown and Blair in the preceding 11 years. The figure is now set to peak in 2015-16 at 78.7 per cent of GDP. But the monetary total keeps rising, from £1.49tn that year to £1.55tn in 2018-19.
Bear in mind that this figure does not include the government’s emergency support for stricken banks. Add this in and the debt total swells to more than £2tn.
Note also the continuing rise in annual debt interest payments, set to graze £70bn by 2017. This is equivalent to the budgets of the education and defence departments combined. In Scotland, debate on the world post-independence is almost totally devoid of the impact of our pro rata share of this annual interest charge on Scotland’s budget. It is the Great Unmentionable in the independence debate, like striking up a conversation about death in the middle of a boozy pub quiz.
We know from our own personal finances how difficult it is to pay down debt. But this is a magnitude altogether greater. And note also the OBR forecast that over the next four years the yield on government debt is set to rise from today’s 2.6 per cent to 4 per cent.
Here is the darkness at the Budget’s heart: years of higher tax revenues and more spending cuts still to come. An unavoidable reckoning with this debt awaits us. And for that we are going to need all the transformative sunny uplands of the last few chancellors combined.