The chancellor's record over five years is unimpressive, even on his own terms
As well as several new announcements, tomorrow’s Budget will provide the chancellor with an opportunity to trumpet the coalition’s economic achievements over the past five years. There are unlikely to be any rabbits out of Tory hats, but there will be lots of carping about a ‘long-term economic plan’. Expect the Budget to be reflective too, with the government’s record since 2010 presented by the chancellor as a resounding success.
Step back from the self-congratulatory backslapping, however, and the chancellor’s record over five years is unimpressive – or at least it is if we hold him to the pledges he made back in 2010.
Deficit reduction
George Osborne in 2010
Back in 2010, the chancellor forecast in his first budget that he would need to borrow £37bn in 2014/15. This formed the backbone of the Conservative pitch to the electorate: the Tories tried to put the frighteners on voters by evoking supposed market fears that the roof would fall in if the deficit was merely halved (as Labour planned) by 2014.
Where are we today?
The deficit today is almost three times the £37bn Osborne expected it to be back in 2010, with it forecast to hit £91.3bn in 2014/15. Back then, Osborne ridiculed former Labour chancellor Alistair Darling’s for merely planning to halve the fiscal deficit over four years. In response, Labour said that Osborne’s plan would endanger the perilous economic recovery.
Darling was right and Osborne was wrong. Shortly after the coalition entered office and embarked on a programme of swingeing cuts, growth faltered (when the coalition entered office the economy had grown for two successive quarters) and as a result tax receipts dropped – making it harder to pay down the deficit. In other words, Britain got the worst of both worlds: slow deficit reduction and faltering growth. Growth only returned in 2013; and as such the deficit then began to fall, but after several wasted years.
Growth
George Osborne in 2010
At the time of George Osborne’s emergency budget in October 2010, the OBR predicted that by 2013 Britain would have achieved growth of 7.7 per cent.
Where are we today?
By the time we got to 2013, the economy had grown by just 2.6 per cent. Despite more solid growth returning in mid-2013, Osborne has little cause for triumphalism; even now, when growth is back on track, Britain’s recovery from the 2008-09 recession has been the weakest of any in the past 100 years. Due to the slow recovery, wages are only now back to 2006 levels. Last month analysis by the TUC revealed that in some parts of the UK, less than half of jobs pay workers the Living Wage. Since 2010, prices have risen by around 20 per cent while pay rises for public sector staff have been around 3 per cent.
Rebalancing the economy
George Osborne in 2010
When the coalition came to office the chancellor promised to move the British economy toward “sustainable growth” with more exports and investment. Osborne said that the UK was “moving from an economy based on debt to an economy where we invest and export”.
Where are we today?
As Tony Burke of Unite recently reported on this website, at the end of last year the manufacturing PMI fell to 52.5 from November’s 53.3, short of predictions of 53.7. For the fourth quarter, the PMI showed the weakest growth in eighteen months. Meanwhile the number of people starting government backed apprenticeships fell by 70,000 in 2014, the lowest number since the scheme was launched. Business services and finance grew at twice as fast as manufacturing in the final quarter of 2014, and the overall trade deficit has hardly moved since 2010.
As James Knightley, an economist at ING, put it: “The long hoped-for economic rebalancing story is not playing out as envisaged. With employment and real household disposable income set to rise robustly in 2015 consumer spending looks set to become the UK’s main growth engine once again.”
The ‘export-led’ recovery
George Osborne in 2010
Back in 2010 George Osborne promised to “raise from the ruins of an economy built on debt a new, balanced economy where we save, invest and export“. Not satisfied with a grandiose pledge like this, Osborne also promised to double British exports to £1 trillion by the end of the decade.
Where are we today?
According to the OBR exports have “fallen well short of our June 2010 forecast” and remain “very weak”. The British Chamber of Commerce, hardly a nest of communism, predict that the chancellor will miss his target of doubling UK exports to £1trn by 2020 because the government is “not putting its money where its mouth is”.
Other problems stored up for the future
Productivity
The productivity of British workers is so bad that French workers could take every Friday off and still produce more in a week than their British counterparts. Last month the Organisation for Economic Co-operation and Development (OECD) recommended that the UK must fix its productivity problems in order to secure future economic growth.
One of Labour’s ideas for improving productivity is a plan to force companies to share some of their profits with workers. France, which has a mandatory profit-sharing scheme, had the second-highest level of productivity per hour in the G7 in 2012.
Welfare spending is up and tax receipts are weak
Tax receipts are weak and welfare spending is up as lots of the jobs created in recent years are poorly paying and insecure. Taking low-earners out of income tax completely hasn’t helped matters. While the OBR is likely to add between 0.25 or 0.50 per cent to its forecast for GDP growth in 2014, combined revenues from income tax, national insurance contributions and capital gains tax are expected to fall £8 billion short of the OBR’s March forecast in 2014/15, according to the EY ITEM Club.
Meanwhile there has been a 60 per cent increase in the number of working people claiming housing benefit since the coalition came to power in 2010, according to figures released last year – despite government rhetoric about being ‘tough’ on benefits. Research for the House of Commons Library, commissioned by Labour, shows that the proportion of working people in receipt of housing benefit has jumped since 2010 from 2.3 per cent to 3.6 per cent. There has also been a 5 per cent increase in the total number of housing benefit claimants (in and out of work) since 2010.
James Bloodworth is the editor of Left Foot Forward. Follow him on Twitter
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3 Responses to “A few things George Osborne won’t tell you in his Budget”
Leon Wolfeson
“even now, when growth is back on track,”
Myth. We’re not back where we would have been without austerity, and we have a bubble in the city.
sarntcrip
The haves like broadcast and print media presenters and editors may well have seen economic improvement due to Tory tax cuts for millionaires tax cuts for the rest have been meagre to say the least hardly surprising presenters and editors on 6 fig salaries trumpet the tory cause it’s in their own financial interests you don’t see ordinary people presenting question time,the news or the sunday politics presented by the wealthy for the wealthy the right of centre political cabal have the media sown up in their favour but for a tiny number of exceptions the media,not politicians or electors set the political agenda then tell us what we think, little wonder nothing changes other than the odd opportunist spiv like farage or griffin stick their heads sticks their head above the parapet you will note no poltical party has used the words care or compassion so far hopefully faith in the sense of fair play and decency of the vast majority of the electorate will help see the end of the most extreme westminster government ever seen in britain chingford dumping iain duncan-smith would set a welcome tone ON election night
MarthaFErvin
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