As the chancellor overshoots his 2015-16 borrowing target by £1.8bn, has his deficit reduction plan failed?
Kallum Pickering, senior UK economist at Berenberg, says Yes.
From an economic point of view, the chancellor’s fiscal policy failed a long time ago. In the 2010 Emergency Budget, the first time Osborne cracked the fiscal whip, he said the deficit would be 1.1 per cent of GDP in the 2015-16 fiscal year. Yesterday’s data shows the deficit was 3.9 per cent. Those original forecasts turned out to be rather overambitious. It makes you wonder, will the chancellor achieve his target of balancing the books by 2019-20? The precedent suggests not. That said, from a political point of view, Osborne’s fiscal policy has been a success. Surely, getting the deficit down in one parliamentary term would have been a strategic blunder at the last election. Since the Labour Party couldn’t be trusted to fix the economy, having a modest deficit after one term was probably viewed by the Tory leadership as strong leverage to get re-elected. A few rotten teeth won’t kill you, but if the dentist pulls them all out at once, there would be no reason to go back.
Alastair Winter, chief economist at Daniel Stewart & Co, says No.
There are two things that strike me in regard to reducing the deficit. First, most people seem to expect and/or want George Osborne to fail. And second, much of the latest flak seems to be more directed at future failure. Forecasting is a mug’s game, but somebody has to do it. And on that basis, £1.8bn on £72.2bn looks really rather more like a hit for both the Office for Budget Responsibility and the chancellor. The main driver of central government revenue (up 4 per cent) is GDP – which in turn, one can argue in our open economy, is largely driven by global developments. And at worst, Osborne can be credited – grudgingly or not – with not getting in the way. Meanwhile, public spending was close to flat, which, in view of all the ring-fencing, looks quite respectable. There is no doubt that there is a lot more work to do in the next few years, but Osborne will surely think of something – perhaps including a new job!