This post is now also available at Liberal Conspiracy (where you can also find a lots more left-wing analysis and opinion, so have a mooch around if you haven’t before)
As you are almost certainly aware, today we received the Chancellor of the Exchequer’s Autumn Statement – something which our current government has turned into a sort-of ‘mini-budget’.
Naturally, the Chancellor and the PM are throwing promises and apologies around all over the place, attempting to explain and excuse our current economic performance – but really, I’m not that interested in the rhetoric – what I am interested in are the predictions made alongside all of this by the Office of Budget Responsibility (an independent arm of HM Treasury) releases its current set of predictions about the economy.
And what’s even more interesting is if we compare these predictions with those made, ooh, let’s say the ones made in 2010 – when our current government first took power, and launched us on our path towards seemingly inescapable austerity.
Net National Debt
An important thing to clear up right at the start is what our national debt actually is: it’s the amount of money we have actually borrowed from other nations, pension schemes or private investors. It’s a real amount of money that our nation actually owes to real people.
It’s expressed here as a percentage of our GDP (the amount our nation is worth) in order to give it a sense of scale.
You can see that the Treasury projection made at Labour’s final budget (March 2010) is fairly pessimistic – expecting the national debt to continue to rise fairly sharply until 2012, before beginning to level off in 2015.
We can also see the Treasury projection made at the first Coalition budget (June 2010) is much more optimistic, with a much shallower curve culminating in a decrease in the national debt by 2015.
When we look at the actual figures (black dotted line up until 2012), it initially appears that both Labour and Tory Chancellors were far too pessimistic – the national debt is climbing less quickly than anticipated.
However, the OBR projection post-2012 is much starker (particularly following the Autumn statement – note the difference between the two dotted lines); the national debt is projected to climb beyond even Labour government’s worst Treasury projections, and to continue to climb beyond 2015.
Spending and the Deficit
The deficit is another thing which needs clear definition, if only because it’s so easily confused with debt (which it isn’t quite the same as).
The difference between the amount of revenue our government generates (through taxation) and the amount it spends (on public works) is either a surplus, when we have money left over, or a deficit – when we spend more than we have received in taxes.
A build up of deficit year after year can require a government to borrow money, and that creates a national debt – but the deficit on its own isn’t directly responsible.
The graph to the left shows Treasury projections from June 2010, following the first Coalition budget (greyed out), compared with today’s OBR projections following the Autumn 2012 statement.
The most noticeable thing for me is that George Osborne’s spending budget is almost exactly the same as it was in 2010 when he first came to power, but every other projection has changed dramatically.
This means that, despite expecting tax receipts to fall (instead of rise quite sharply!), and thus no longer expecting the deficit to become a surplus by 2015, which is causing the national debt to rise ever more sharply – the Chancellor has no plans to change the amount of money he is spending.
Even though his plan was predicated on tax revenues increasing to match – and ultimately overtake – his spending.
Obviously it’s easy to criticise someone using the awesome power of 20:20 hindsight – so let’s take a look at Labour’s 2010 Treasury projections:
Again, the 2010 projection (this time that made following Labour’s final budget) is greyed out, and is compared with the OBR projection made following today’s Autumn statement.
We can see straight away that Labour are guilty-as-charged regarding any accusations that they would spend more – their 2010 budget clearly shows more spending than the current Chancellor’s plan.
But we can also immediately see that Labour’s projections seem rather more realistic than either of the Conservative Budget’s we’ve just looked at.
At no point are they predicting sudden or massive increases in tax revenue, or for this to rapidly overtake spending – they are predicting a gradual increase (but Labour’s plan was also to spend more money on public services so it’s possible this would actually happen).
The important thing here isn’t that Labour’s Treasury projections are better, it’s that they’re no worse than Osborne’s. The projections made following Labour’s March 2010 budget match up almost exactly with what actually happened to the economic performance of the UK over the following two years.
The point here being that, even if you don’t believe that Labour’s economic plan (spending more so as to stimulate the economy with public money) would work, George Osborne’s Conservative plan clearly isn’t working either.
And I think the figures seem to show that even under a hypothetically unsuccessful Labour government, our economy would be no worse off than it is now – but we would be much better off without the incessant, crippling, impact of austerity measures which are simply not working.