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Government’s own budget watchdog rips into Osborne

'Gideon' OsborneIf you read George Osborne’s budget speech in the Commons, and then read his own Office of Budget Responsibility (OBR) analysis of it, it is like reading Fifty Shades of Grey and then turning to the Handbook of Morality and Sexual Ethics. They’re so much like chalk and cheese that it’s almost impossible to take in that they’re talking about the same thing. Osborne is breezily confident – recovery strengthening, fastest rate of growth of any Western economy, etc., whilst the OBR is irredeemably pessimistic, on five separate counts:

First, Osborne says he expects a surplus on the public accounts by 2018-9. The OBR estimates that though headline borrowing is (very slightly) down, once adjustments are made to reflect the unexpected upswing in the economic cycle, borrowing has actually grown compared to a year ago.

Second, and even worse, Osborne predicts a strong and lasting recovery, but the OBR does not find this credible because unemployment and spare capacity have fallen so quickly that there is little scope for rapid growth beyond the current year. This has led the OBR to cut its forecast for growth next year from 2.7% to 2.3&. When the economy this year is still below the output level of 2008 and unemployment is still 2.4 million, this premature petering out of growth so quickly is frankly a disaster.

Third, Osborne repeatedly quotes rising growth forecasts, but the OBR thinks the recovery is built on sand. It notes that the upswing has been characterised by exceptionally weak productivity growth, a labour market tightening significantly, and a rise in household spending caused largely by lower saving – all the wrong ingredients if the public finances are to be genuinely repaired as opposed to temporarily patched up with sticking plaster.

Fourth, Osborne dreams about rebalancing the economy towards manufacturing, investment and exports. There is no sign whatever that any of this is going to happen. The OBR says Britain will continue to lose export share steadily over the next five years, even though there is already the biggest deficit in traded manufactured goods in Britain’s history, at £110bn a year and rising.

Fifth, Osborne talks about getting down the debt on the public finances, but it’s only on the back of a corresponding rise in private debt. The OBR forecasts that household debt which peaked at 170 per cent of national income in 2008 and has now fallen to 140 per cent, will spring back upwards again to near-2008 levels by 2018.

This whole (honest) OBR scenario is grim. The public finances are still terrible, none of the components for sustainable growth are present, the upswing is largely dependent on excessive consumer borrowing and and other asset price bubble boom and bust, and the recovery (such as it is) is expected to fade before it’s hardly begun.

4 Comments

  1. Rod says:

    No ripping into Osborne from Labour. Looks like Labour has hoisted the white flag.

  2. ray davison says:

    The Labour leadership looks increasingly like the fags of Eton and the role suits them. Great policy on the cap: so Labour, so sensitive to need: qu’ils mangent de la brioche.

  3. David Ellis says:

    Milliband should immediately have condemned these so-called pension reforms as bogus.

    There is no new choice here. People currently have the choice to make tax-relief-attracting payments into a pension pot or not. If they take the money out at the end in a lump sum or sums instead of buying an annuity they will pay the tax on that money that they would have paid had they saved or invested it in the first place.

    In fact, if this destroys the annuity market as it surely must then a choice will have been removed and so will tax relief on pension contributions.

    This was perhaps the world’s first post-capitalist budget which green lights the liquidating of assets and the squandering of savings in favour of a balance of payments destroying splurge on sports cars and a speculative boom in housing.

    All this and the destruction of public spending and welfare in order to bail out the billionaire and corporate creditors of the bankrupt banks.

    Socialism is no longer simply a nice idea. It is a pressing necessity if Britain is not to be reduced to third world penury and a New Dark Ages.

  4. David Ellis says:

    In fact Osborne’s budget is short-termism gone absolutely bonkers. To win next year’s election they are destroying one of Britains last independent sources of capital investment. But you know what they say: those who the gods would destroy they first make mad.

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