Beware Osborne’s massaged figures

According to the writing on Osborne’s tin, we now have the fastest rate of growth of any major Western country. But as with all tins, it’s as important to think about what it doesn’t say as what it does say, as well as to wonder whether what it does say is realistic and can be delivered. On both counts more than a pinch of salt is needed. What it doesn’t say is, first, that a forecast is not an actual happening.

Consistently since 2010 the OBR and the Treasury have optimistically over-estimated annual UK growth levels, and though there clearly will be some modest growth this year it is extremely unlikely to reach anywhere near the latest IMF figure of 2.9% because all the essential foundations for sustainable growth – rising business investment, rising demand through rising wages, rising productivity, and rising exports net of imports – are all absent. Second, Osborne’s tin also omits the rather important point that the UK economy after 4 years of austerity is still way behind all the other major G7 economies. In particular US output following Obama’s stimulatory policies is now 5% above pre-crash levels while UK output depressed by Osbornian austerity is still 1.4% below its pre-2008 level.

Third, and most important of all, Osborne is trying to move the goalposts by sneaking in new accounting standards which will radically alter the economic picture to his own advantage. What his new accounting framework does is adopt new standards to measure public debt and gross domestic product as well as other variables like the savings-to-income ratio which, without any economic activity at all, suddenly make UK performance look a lot better.

For example, R&D and defence production will now count towards GDP which will have the effect of adding up to 5% to the size of the UK economy just by a change in the accounting rules. Osborne is also proposing to count future pension rights as if they were present income, and again that will inflate the savings-t0-income ratio by some 5%. These are enormous changes in the public accounting system and, given such a tricky and devious character as Osborne, they will undoubtedly be flashed before the public’s consciousness as proof of his brilliant management of the economy when they are nothing of the sort.

Another trick being foisted on an unsuspecting public by Osborne is his repeated insistence that this is all part of his long-term economic plan which is now coming right just as he said it would. Again that is the opposite of the truth. His long-term plan was prolonged austerity and the sole reason there is now any growth at all is not because he adhered to it, but because in desperation he was force to deviate from it. What has changed the situation is the Help to Buy housing bubble, the restoration of some of the huge cuts in capital spending so unwisely axed in his first budget, and the strong encouragement of further consumer borrowing (exactly the wrong way to promote growth and inevitably short-lived). Not a way to run a railway, let alone a national economy.