The New Debt Forecasts & Osborne’s Misleading Claim
The Government have been claiming for some time that they ‘reduced the deficit by a quarter’.
As Jonathan Portes has pointed out, a more accurate claim would be:
We’ve reduced the deficit by a quarter, in line with the plans we inherited, despite the fact that the misguided policies we and others implemented have made deficit reduction much more difficult. We’ve done this mostly by massive cuts to public investment, despite the fact that the economic circumstances are more conducive to public investment than at any time in living memory.
Today George Osborne went a step further and claimed that:
We’ve now cut the deficit not by a quarter, but by a third.
This is an incredibly misleading claim. The public sector borrowing figures are now impacted by a whole variety of special factors from the changes to the Royal Mail pension fund to the impact of QE.
Thankfully the OBR, in table 4.36, has provided the underlying detail that allows us to compare like with like.
On this basis, the chart below shows the deficit since 2009/10.
As can be seen, three things jump out. First, the deficit has been reduced by 22.5% on a like for like basis. This is little short of the claimed ‘quarter’, let alone the new claim that it is down a third. And as Jonathan has pointed out this has been ‘achieved’ through damaging cuts to capital spending.
Second, deficit reduction has totally stalled. There is no real expected improvement between 2011/12 and 2013/14. Austerity for the next two years is achieving nothing more than treading water rather than actually reducing borrowing.
Finally, these forecasts represent a huge increase in borrowing compared to the OBR’s initial estimates. Back in June 2010 the OBR expected public borrowing in 2014/15 of £37bn. They now expect it to be £108.4bn (excluding special factors). By any stretch this is a huge miss. In fact, whilst George Osborne is saying that he has already reduced the deficit by a third, the OBR is actually saying he will only have reduced it by a third by the end of this Parliament.