Leading article

Deal with the debt, George Osborne? You’ve hardly started

The Chancellor has given himself eight years to cut spending by less than Denis Healey

25 October 2014

9:00 AM

25 October 2014

9:00 AM

George Osborne has declared victory over Ed Balls, the IMF and all the others who warned that his austerity measures would throw Britain back into recession. But his triumphalism obscures a huge failure: his inability to contain the national debt. While the UK economy has been growing strongly (it is currently the fastest-growing of any developed country) the public finances have taken a dramatic and sudden turn for the worse. It emerged this week that, between April and September, the Chancellor borrowed £58 billion — £5.4 billion more than during the same period last year.

Osborne’s original plan to eliminate the structural deficit by the election has been off course for a long time, but it is now going backwards. This is embarrassing for a Chancellor who is about to fight the next election on financial competence. Yes, the number of jobs is soaring, but only because salaries are so miserable. The nature of the jobs created — chiefly, those at the bottom of the pay scale — explains why tax revenue is not being generated as fast as he expected. Even now, the economic recovery he once forecast is almost two years behind his original plan.

Osborne has now given himself eight years to cut state spending — by just 3.9 per cent. This is not the work of an Iron Chancellor, more like a child peeling off a plaster slowly so as to minimise the pain. It is funny to think that Labour’s Denis Healey cut state spending by 3.9 per cent in just one year (1976) when the IMF told him to.

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Osborne’s slow-motion austerity has a price: the national debt, which stood at £975 billion when he took office, is £1,450 billion now, and rising fast.


As the election approaches and the parties fall over themselves to offer the usual bribes, the Chancellor’s discipline is weakening further. His pledge not to seek any savings from the Department of Health budget is extraordinary, given the pressure this will place on other departments. He has also committed the Tories to a potentially ruinous ‘triple lock’ guarantee on state pensions. To make such promises in the heat of an election campaign would be understandable, if regrettable. To make them now borders on reckless.

Osborne is not an austerity chancellor. He is no 1940s housewife eking out the ration stamps. He is more like a footballer’s wife who feels so smug after ‘saving’ herself a few hundred pounds buying clothes in a sale that she goes out and blows most of her illusory ‘savings’ on a slap-up dinner. Where does he think Britain will find the money for his pet project, the entirely unnecessary High Speed 2? And why, in the midst of a supposed austerity drive, does he boast about the amount spent on foreign aid? Once you define a success purely in terms of money spent, you guarantee waste, as that is the easiest way for officials to reach the target.

If the Conservatives want to go into the next election as the party of financial competence — and they are sunk if they do not — the Chancellor is going to have to convince us that he is serious about reducing spending. At the moment he is using verbal tricks — saying he will ‘deal with the debt’ — by which he means (at present) increasing the debt at the rate of £3,000 a second. Every day of delay means permanently higher national debt, which in turn means saddling the next generation with higher taxes.

There is one benign explanation for the dismal tax receipts. The coalition has (at the behest of the Liberal Democrats) raised the personal allowance for income tax. This may explain why, over the last four years, the number of working-age people in work has risen by 5 per cent, but the number paying income tax is down by 7 per cent. New jobs are being created mainly in places where salaries tend to be lower, like the East Midlands and the north-east of England.

So the Chancellor does have some excuse for taxes not being as strong as he had hoped: he’s a tax-cutter, and his fiscal reforms are working. The hope is that the deficit problem is transitory, and will vanish when the workers move to higher-paying jobs and start to pay tax. After all, Osborne’s corporation tax cuts cost money at first. Now, corporation tax revenues are soaring, up 5 per cent this year so far.

With memories of the great recession fading — and the economy apparently back on its feet — it is going to be harder to convince the public of the need for less and cheaper government. But it will be harder still for a Chancellor who has fought the election promising tax cuts, but barely mentioning spending cuts. If Conservatives are to gain the upper hand in the inevitable clashes with the unions which will result from any attempt to shrink the state, it is vital that they win a proper mandate to continue to try to eliminate the deficit.

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Show comments
  • Christopher Seaton

    Not just HS2 & overseas aid, there are buckets of money poured into the EEC. Necessary spending on defence is neglected.

    • Hegelguy

      Who is the enemy?

  • although i agree with this, in political terms, is anybody really going to say: what i want is austerity, so ed balls is my man! the fact is, the tories are in a coalition (as you mention), and the economy has recovered well, i really do not see any other party offering a more credible plan for deficit reduction.

    • Mukkinese

      The economy has not “recovered well”, it is on the way to stabilising, the often repeated spin of it being the “fastest growing” is more politicking silliness which means nothing on it’s own. If the economy is still behind others then it needs to grow faster still, but will not and few are feeling any recovery…

      • so which party do you think offers the most credible plan for deficit reduction? isn’t it a fact that the UK has the fastest growing economy of the rich nations? perhaps your point is that some are not ‘feeling any recovery’, which is true but doesn’t help on the first two points.

        http://www.telegraph.co.uk/finance/economics/10988849/UK-has-fastest-growing-economy-International-Monetary-Fund-says.html

        • AJ

          The only way out of this now is to leave the EU, Cameron and co have no intention of doing that, nor have any of the other main stream parties. So the national debt will simply go on increasing year on year. The only way to save ourselves from this god damn awful mess is to leave the EU ASAP by voting UKIP as a matter of National emergency, spread the word each and everyone of us, tell your friends, workmates, relatives, get them voting to save ourselves, Europe is about to collapse financially, it doesn’t work, socialism never does or has.

          • Terry Field

            How the hell does any of that help ? – it is religion for you – no rationality – just religion!!!!!!!

  • davidofkent

    Clearly, the headline mis-states the situation. Everyone knows that the National Debt has been going up and that George Osborne never said he could deal with that. He has been trying to deal with the deficit, and was doing fairly well (B+) until recently. Now the chickens have come home to roost. The tax from savings income is very low because we get so little interest, courtesy of Base rate 0.5%, QE of £375bn and HTB. The squeezed middle don’t feel like working any harder so that they can pay yet more tax. Many more people have been ‘let off’ paying for any public service. So here we are. We all know (?) that government spending must be cut in a big way. We also know that there is only one answer to the EU’s demand for another £1.7bn to bail out France and Germany. So get cutting, Mr Osborne, please. You could start with Foreign Aid and you could ask Theresa May to do her job instead of making fancy speeches.

    • Mukkinese

      Even those who were taken out of the tax threshold pay N.I. and the revenue lost is a drop in the ocean of that lost to tax avoidance, which Osborne refuses to tackle in any meaningful way…

      • davidofkent

        Tax avoidance is a legal way of organising your affairs. The HMRC is already challenging the wilder ‘tax avoidance schemes’. There was no income tax lost when the lower threshold was paid. The bill was passed to higher rate taxpayers. Employees on lower wages do pay NI, I agree, but not very much. I also note from the chart that George Osborne has added as much to the National Debt as the last Labour government did. The last Labour government, however, was running a booming economy, and not trying to put right the results of the Labour Government’s public expenditure profligacy. Nevertheless, George must get cutting properly.

        • Dave Beales

          Tax avoidance is NOT “a legal way of organising your affairs”. Tax avoidance is a gamble that organising your affairs may not prove unlawful. A subtle but very distinct difference

  • AJAX

    It doesn’t take a financial genius to print the currency at 0% interest rates incessantly & ruin HM Treasury by running up £1 trillion (I’m not even sure how many zeros that is so I’ll write it) more in debt over 5 years, in exchange for an anaemic temporary recovery.

    The Liblabcon Party is a fiscal joke.

    • Terry Field

      Compared to which alternative????
      Sov-man???

  • Samson

    “The hope is that the deficit problem is transitory, and will vanish when the workers move to higher-paying jobs and start to pay tax.”

    People in low paid jobs live on a knife’s edge, and employers know this. They don’t need to raise wages, it’s silly to imagine they will.

  • fundamentallyflawed

    I took a 10k pay cut but the bank will lend me 20k a year to cover the shortfall until I get a pay rise yippee… UK Economic policy in simple terms

  • berosos_bubos

    How much of annual state expenditure is spent on foreigners ? Does anyone have any information ?

    • Agrippina

      Intl. Development Cttee findings Parliament -2.10.14. We were shocked to discover that in Liberia only $3.9 million of $60 million EU health sector support had been passed on from the Min of Finance to the Min of Health over 2 year period, leaving the Liberian health system struggling.

      Neither the EU nor DFID seemed to be doing anything to resolve the
      situation. DFID has been working for the last five years on building up the
      Liberian health system (and have spent £20 million doing so); Ministers should be concerned that this work is being undone, not least because DFID provides 16% of its total budget to the EU (£1.23 billion).

      UK spent approximately £70 million in 2013-14 in Sierra Leone. ~This is just the bilateral programme figure and does not include centrally-managed programmes or core funding of multilaterals. We found it unacceptable that DFID were not able to produce a figure for overall spending in Sierra Leone.

      DFID obscures transparency by grouping several country programmes in one under centrally-managed and multilateral programmes.

      http://www.publications.parliament.uk/pa/cm201415/cmselect/cmintdev/247/24703.htm

      Cammy announced further aid to fight Ebola at EU summit 23.10.14. This would bring Britain’s pledge to £205m, about a third of the amount pledged by the EU as a whole.

      • Fraser Bailey

        Well, everyone knows that all the money DFID spends is wasted. This is not news.

        • Agrippina

          You and most people know that, save for our elected politicians it would appear.

          The piece above is a precis from the summary of findings from the International Development Committee Meeting on the 2.10.2014.

          Thus if the corrupt liberian & sierra leonian govts had actually put the money into health as they were supposed to do, they would have had adequate health facilities. But why would they, as the West will come and deal with the difficulties in due course.

    • Agrippina

      Kent Police arrested 100 nationalities in the year Oct 2012 to 2013. Majority from Eastern Europe, particularly Liths (230), Poles (213), Romanians ( 208), Slovaks (162) & czecks (79).

      3 yr period to 2012 Police forces Eng & Wales spent £40million on translators. Met police spent £7.1million translating 97 langs.

      http://www.telegraph.co.uk/news/uknews/10080870/Police-spend-40-million-on-translators-in-just-three-years.html

    • Agrippina

      The govt did relatively little before December 2012 to tackle the problem of potential foreign national offenders entering the UK.

      A new 2013 action plan has focused efforts on this aspect of prevention but it lacks a structured and informed approach. End of March 2014, there were 10,600 foreign nationals in prison in Eng & Wales – 1 in 8 of all prisoners – from over 150 countries.

      An average of 319 days in 2013-14 to deport an FNO once it had decided to do so. Costs of these offenders £70k per annum.

      http://www.nao.org.uk/report/managing-and-removing-foreign-national-offenders/

      Then there are the costs of providing housing, education, jobs, health services to all and sundry. Along with topping up the benefits for the low paid jobs that they take. That is working tax credit, child benefits, child tax credit, housing benefit & council tax benefit.

  • davebush999

    Can you believe it – Osborne has borrowed more in 4.5 years than Brown did in 13. And you say the tories are the party of economic competence?

    • DCW

      Thats because Brown didn’t start with massive debts and nothing left in the coffers. The labour government stole all the money that was there, spent what they didn’t have and almost destroyed the country while doing it.

      • mixodorians

        Yeah the Tories would have regulated the banks, and saved all the spare cash for a rainy day..(instead of giving massive tax cuts)…just in case a world wide global financial catastrophe hit.

  • Terry Field

    A stupid article – Healey did not have the total debt pile, he did not have a de-industrialised economy, he did not have the asset price inflation in bank balance sheets British banks STILL have. The seventies were a cakewalk compared to this. Just when will commentators get the scale of the problem the country faces???????

    • Roger Hudson

      If all the strikers who brought down what was a quite good government had only realised what whould happen afterwards , wholesale closures , privatisations and outsourcing they might not of brought it crashing down.
      That house I bought for £11,500 was an oasis of calm throughout the decade.

      • Terry Field

        I hope life has been good to you since then.The house sounded a good place to be.

  • UK Eurosceptic

    My last job was commercially breaking up Northern Rock into a good and bad bank 4 years ago.
    Not a days work since – not through lack of trying/applying.
    Now I am unemployed, potentially going bankrupt and losing my family very recently as my partner couldn’t take the stress anymore.

    George Osborne is incompetent and was a “part time” Finance Director of UK plc. He thought a pastie tax was the most important of his tenure.
    What we require is a restructuring of our public cost base. I have been to see the NHS 4 times at the personal cost of >£500 and they have done nothing.
    I know how to save the Government £tens of billions but they will not utilise my skills to achieve this.
    Why I do not know.
    Political suicide or a lack of reaction/knowledge from Liam Byrnes note left in 2010. Stupid Osborne and the ginger dude from the Liberals didn’t get it until 2012/13.

    Now we have a huge mountain of debt, rather than resolve the issues mentioned above. Will they ever tackle the pension issue as it is politically dangerous. The answer is NO.
    All parties have been patsying up to them as they vote, and now the poor and the young will take a generation or more to resolve.

    In the meantime they have been trying to keep the youths on side by offering (bribing/subsidising) low paid work to appease any rebellion.
    My niece is £40k in debt through tuition fees and will possibly never earn enough to repay which will have to go on the National Debt sometime soon.
    Bribery is the weapon rather than a pragmatic approach.

    IT IS ALL VERY DISGUSTING and we will all pay in the end – except the voting pensioner.
    I am not griping of my personal circumstances – they are what they are. But I know the dire straits we are in and the IMF is bankrupt too!

    We have to look at ourselves and cut costs. The NHS can keep people alive, very expensively potentially forever – such is technology. But who is paying? Certainly not corporations who are allowed to tax dodge and lobby!

    • UK Eurosceptic

      And my mother is one of those rich pensioners whose pension is backed by state guarantees and subsidises my £72.40 benefit and my rent.
      We are all becoming debt serfs to the bank of mum and dad and the wealthiest keep making.

      I believe in free market economics but live in a “communist” political system/age. Let the banks collapse so we can restructure fast.

  • Christian

    Most if the fall in unemployment is people realising that by pretending to go self employed they can actually get more in benefits than they can on the dole.

  • mixodorians

    We need to tax the rich and not so rich at upwards of 90%..take that money and give it to the poor to spend.
    Give local economies and businesses a real shot on the arm.

    No good offering the rich and not so rich bribes as they don’t spend it…and all that money disappears out of the economy.

    For every pound you give a poor person it stimulates about £3 worth of growth. For every pound you give a wealthy or not so wealthy person it stimulates about 3 pence worth of growth.

  • Chris Quin

    – UKIP will leave the EU and save at least £8bn pa in net contributions. (Make that £10bn as of this week)

    – UKIP will cut the foreign aid budget by £9bn pa, prioritising disaster relief and schemes which provide water and inoculation against preventable diseases.

    – UKIP will scrap the HS2 project which is uneconomical and unjustified.

    – UKIP will abolish the Department of Energy and Climate Change and scrap green subsidies.

    – UKIP will abolish the Department for Culture Media and Sport.

    – UKIP policies are also aimed at getting direct payments from those from outside the country who want to use our universities, hospitals and roads. At the moment anyone can use them for free.

    No other party promises these deficit cutting policies

    Vote UKIP.

  • Bill Sticker

    As our borders are now not our borders any longer and our Brussels masters have decreed it is illegal to halt the SWAMPING of out towns and cities by hoardes of benefits seekers then the possibility of keeping welfare legal and all the associated social housing health and the rest which our country is obligated by the EU to currently provide under any kind of control dosen’t exist. Our welfare bill is already nearly 30% of all government spending and this invasion wil ljust drive it higher not to mention our already creaking infrastructure not built to take such pressures.

    £1.7 billion yet it was only bak in May they stole £500 billion to plug a mysterious £3.8 billion hole in the EU budget and incidentally the same month the bar bill in the house of commons topped £1.4 million.

    Even better we quit the EU our tax payers wont have to pay retiring MEPs a

    pension of £82,000 or £1572.60 per week.lump sum £160,000 like that just awarded to retiree Maoist communist Barosso of the £1.7 billion tax on the UK fame Then there was the v£1.2 billion wasted on the fiasco’eBorders’ project computers which our EU bosses opordered to be scrapped as collecting info on immigrants was deemed illegal by them

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  • HD2

    Gutless, spineless, useless.
    Sums up the Conservative ‘Wets’ (or Cameroons)
    Sums up the CotE, Osborne
    Sums up the state of the nation
    The Coalition government has proved to be a failure in almost everything it has done: it lacks the courage of its convictions – because it HAS no convictions.

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