The Into the Black Labour crowd have nailed their colours to the OBR just as it - and George Osborne - lose credibility. What gives?
Imagine for a moment, Labour was in government. It would have borrowed about £125bn this year, less than Osborne will borrow.
Gilt yields would have held above the three per cent level because growth would have been maintained rather than collapsing, but unless growth was fast enough to do what the coalition won’t and remove the deficit in one term, gilts yields would never have gone above four per cent.
On those numbers, its commitment to halve the deficit in a parliament would clearly be on course.
If we had been in government with the strategy in place and working, the “In the black Labour” report would have been timely and welcome. It would have engaged with the question of governmental fiscal rectitude: given that we would still have a 3.8 per cent of GDP deficit in 2014/15, what should our spending priorities be in our fifth term?
And this is my problem with this report, it’s evidence that Labour’s thinkers still haven’t adjusted to opposition.
Are the authors seriously saying that Labour cabinet ministers didn’t know going into the 2010 budget that Darling had committed to only halving the deficit by the end of this parliament? Are they also saying that they never had a plan?
The authors should have much more confidence that Labour is the party whose analysis offers the best way to cut deficits, especially as this week the coalition’s strategy has been exposed as a spectacular failure with predicted borrowing has gone up by £158 billion.
But even more counter-intuitively, they argue that high deficits undermine a party’s economic credibility in a week that Osborne’s poll ratings have gone up. This week there is no causation between a bottomless pit of borrowing and poor polls.
The dangerous recommendation in this report, however, is its reliance on the Office of Budget Responsibility (OBR). This report’s naïveté on the OBR is strange. Of course the OBR’s independence is its political value, its toxicity to everyone is the uselessness of its forecasts. The experience of forecasting over the last year does not support giving the OBR further powers such as policy recommendations.
I agree that the OBR has some of the best economists in the country. However, its model stinks.
The simulations of the OBR are reliant on the Treasury model of the economy, and for this kind of economy right now it’s crap.
Table 1: Consider first how the Treasury, and then the OBR, predicted borrowing would turn out for 2010-11, which was to a great extent determined by the outgoing Labour government operating under the Darling plan – it was revised down in total by £28 billion in total:
| The wildly different predictions of borrowing under the Darling Plan | ||||
| Nov 2009 Treasury Prediction | Mar 2010 Treasury Prediction | Jun 2010 OBR Prediction | Actual | |
| Borrowing 2010-11 | £173bn | £163bn | £156bn* | £145bn* |
| *adjusted for the £8bn cuts in June 2010 budget to make predictions comparable | ||||
Table 2: Now let’s see how predictions of Osborne’s borrowing have been consistently uprated from orginal predictions – by £13 billion in all:
| The equally wildly different predictions when policy changed to cutting spending | ||||
| Nov 2010 OBR Prediction | Mar 2011 OBR Prediction | Nov 2011 OBR Prediction | Current City Prediction | |
| Borrowing 2011-12 | £117bn | £122 bn | £127 bn | £130bn |
Some might say that Labour lost the election because the Treasury model was wrong on borrowing by £20 billion. Some might say that the very same coalition’s strategy “is now in tatters” this week because the OBR got their predictions wrong.
This is symptomatic of our still getting to know where the OBR sits in our political economy. For example, why is it that no-one has asked why Osborne told the OBR to publish analysis of Darling’s budget in 2010? It’s something that is now a curse for Osborne that will hang over him for the lifetime of this parliament as “the best estimate of what Labour would have done”.
Who in June 2010 cared what Labour’s budget plans would have done? The best explanation for this weird piece of simulation is that this oh-so political chancellor was so sure the coalition would get it right that they were going to use that forecast of Labour’s borrowing in every piece of election literature from 2013 until the election: ‘Look what the OBR said Labour would have done, and see what we achieved instead!’
Now that the coalition’s strategy has collapsed the OBR’s prediction should be on every piece of Labour’s literature from now until the election too.
The OBR is Osborne’s biggest mistake. The errors in the OBR’s model are enormous – £30 billion is the whole of the corporation tax take. £10 billion is 20 per cent of the NHS budget.
Getting it wrong by this much will mean it’s a liability, not an asset to any government. But by making clear what economically Labour would have done, Osborne has created an instrument that will inflict four years of pain. It’s Labour’s job in opposition to make this count.
And it’s this opposition mindset that is missing from this report. In the week that’s seen the collapse of whole fiscal edifice of the coalition’s existential commitment to cut the deficit, they’ve published a report worrying about what Labour will do after it’s won in 2015.
To win, the comrades need to show the coalition are economically incompetent. This report does not do that.
See also:
• OBR confirm Osborne will borrow more than the Darling projection – Daniel Elton, November 29th 2011
• Whatever Osborne’s growth forecasts today, the reality is probably worse – Daniel Elton, November 29th 2011
• The Purple Book: Bland and tragic – Carl Packman, October 15th 2011
• Blue Labour exclusive: David, Ed, Glasman and community organising – Rowenna Davis, September 25th 2011
• Labour frontbencher Helen Goodman: My fears about Blue Labour – Helen Goodman MP, June 22nd 2011
17 Responses to ““In the black Labour” nails its colours to the OBR – the OBR that keeps on getting it wrong”
Anonymous
So LordBlagger has found a new site to troll to fill his empty benefit scrounging days.
Richard Blogger
“£10 billion is 20% of the NHS budget.”
No it’s not, it is less than 10% the NHS budget.
The problem that other commentators ignore is that the electorate in 2015 will think differently to the electorate in 2010. I concede that the electorate in 2010 wanted a change, and a change to what they imagined would be more responsible economics. But they *did not* vote for austerity. When Osborne mentioned the A-word in his address to the 2009 Tory conference the Tories suffered a drop in support, indeed, from that point onwards their lead diminished.
In 2015, as Steve Hilton has promised us, *everything* will have changed. A market-driven NHS, no state schools, all public services contracted out, rising crime due to falling police numbers. Two of the main parties will go into the election with the plan for more austerity and more pain. Two parties will present education and health systems that will be failing, that they hadn’t told us we would get in 2010, and ask us to forgive them for screwing them up.
One party will not be tarnished with the mismanagement of public services. One party could go into the next election with a pledge to restore public services. Why should Labour say “me too!” and promise more austerity? Won’t that turn off *our* voters? And what about the voters who voted for one of the coalition parties in 2010, hurt by the austerity and the mismanagement of the NHS, where will they go? Remember that Labour won a landslide in 97 promising to restore public services.
Sean Lynch
This is an interesting rebuttal to @hopisen's Black Labour paper – http://t.co/R3f5Zr7m
Look Left – Does Labour need its own Plan B? | Left Foot Forward
[…] the report, Cormac Hollingworth wrote on Left Foot Forward tonight: “Now that the coalition’s strategy has collapsed the OBR’s […]
Conrad
Seriously? The world economy is about to drop off the cliff and the chattering classes still rage on about austerity? Look come election time aren’t gonna give a shit about whether or not Labour looks responsible at tackling deficits, they are going to be looking around their local area and seeing their friends get laid off and think that the Tories were useless.
This is also an election where Labour can pick up some serious votes by swinging to the left, most of the voters didn’t go Tory, they just stopped voting at all, you could revitalize the grass roots and the old voters by going left on most issues, as for those who switched to Tory? Well the key issue was surprisingly immigration, if Labour wants to win, they need a solid policy on that, preferably something anti-migratory for non-EU citizens at least for the time being when people are work insecure, everything else will probably go better for people if they go left, people feel inequality is too great and are in desperate need for a party of the people, and much as i loathe to say hard stances on crime and immigration would allow a lot of fundamental shifts on other areas and would slay the image as Labour being the party for the metropolitan elite.
No-one really cared about the deficit last election and they won’t care next one when the Tories austerity plans fail, and they will fail. What people will want is employment to be tackled and better standards of living, if this means greater taxes on bankers and the rich as a selling point all the better.
Seriously, buy the election with promises for structural investment, better social housing and unemployment benefits, this won’t be a just out of the woods recession election like last time, its much more likely that people will go for it after 5 years of unemployment and misery, the average person doesn’t see the world in terms of left and right, there is just the party fucking things up and the party not in power.