The Chancellor tried his best to put a positive spin on the Autumn Statement but any optimism was snuffed out by the IFS yesterday, according to Flip Chart Fairy Tales. Here’s IFS Director Paul Johnson:
“Some of yesterday’s biggest announcements were not from the Chancellor at all, they were from the independent Office for Budget Responsibility.”
A polite way of saying don’t bother listening to George, just wait for the OBR figures to see what’s really going on.
“Robert Chote and his team announced two big changes to the public finances. The first was a really substantial downgrade to expected tax revenues. It’s the fall in expected revenues of nearly £8 billion this year which accounts for the disappointing fall in the size of the deficit. Look out just three years to 2017-18 and the shortfall hits £21 billion. This lack of buoyancy in tax revenues, associated with poor earnings growth, looks like being a continued cause for concern.
“The only reason that that didn’t drive a coach and horses through the fiscal forecasts was that the OBR made an offsetting forecast change – to expected spending on debt interest, expected to be about £16 billion lower in 2017-18 than was expected back in March.”
In other words, but for a fall in borrowing costs, the lack of wage growth would have really screwed us. Stagnating pay, then, is doing more damage than the accumulated debt.
This means an increase in spending cuts to achieve the overall surplus in 2019, plus some more to hit “supposedly, an overall surplus of £23 billion by 2019-20″.
Which, he said, implies austerity until the end of the decade.:
“[T]here is no spending dividend on the horizon. Far from it. There are huge cuts to come. On these plans, whatever way you look at it, we are considerably less than half way through the cuts.”
He went on to make this crucial point:
“It is important to understand why the deficit hasn’t fallen. It is emphatically not because the government has failed to impose the intended spending cuts. It is because the economy performed so poorly in the first half of the parliament, hitting revenues very hard.
“As ever there are different ways of looking at the scale of cuts. If you look at total government spending less spending on debt interest (a measure the prime minister has used at times) then spending is down by £11 billion in the four years to 2014-15, and is due to fall a further £38 billion in the five years to 2019-20. The relatively modest fall over this parliament is largely explained by increased spending on social security, especially pensions.
“If you look specifically at spending by Whitehall departments, then about £35 billion of cuts have happened, with £55 billion to come.”
If anything, public sector organisations have over-achieved on spending cuts. They have done all that was asked of them and more. The missed deficit target is due to poor tax revenues and higher than forecast benefit costs. An ageing population and a labour market in the doldrums have trashed the deficit target.
All this means that the surplus George Osborne hoped to achieve by the end of this parliament won’t be achieved until towards the end of the decade.
For more, including the IFS position on the ‘candour deficit’ and the lack of a ‘state-shrinking strategy’, please visit the full article on Flip Chart Fairy Tales.
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