Digging to stand still
- 5 December 2012
- From the section Business
Of all the bad news unveiled today by the chancellor this might well be the worst: after two and a half years of austerity, the Office for Budget Responsibility (OBR) is likely to say that the fiscal hole that Mr Osborne promised to eliminate in five years, back in May 2010, is actually bigger now than it was then.
Yes. You read that correctly. The austerity has been real: by the end of this tax year we'll have had £59bn's worth of tax rises and spending controls since April 2010. But the hole in the public finances has expanded to absorb it. Or at least, that is the view of the OBR.
When he wrote his Budget, Mr Osborne thought that three years of austerity would more than halve the structural current deficit, from 4.8% of GDP to just 1.9%.
That was before the recovery faltered. And before the OBR took a much gloomier view of the economy's room for growth in last year's Autumn Statement. By April of this year it had decided that Mr Osborne's measure of borrowing would still be 4% this year, for all his efforts.
That was pretty bad - it meant that a squeeze of more than 4% of GDP had shrunk the hole by less than a quarter of that amount.
But when you apply the OBR's model to the economic data we've had since April, it looks very much as though they will have revised up that totemic measure of borrowing, yet again, for this Autumn Statement.
The Institute for Fiscal Studies, for example, reckons the OBR will put the structural current deficit this year at 4.9% - even under its most optimistic scenario, where Robert Chote and his colleagues consider the loss of growth this year to be temporary.
That is what you might call "psychologically significant". Because it means, even on the most optimistic assumptions, the OBR is going to tell the chancellor that the structural hole he set out to fix is actually larger, now, than when he took office. The disease that the chancellor came in to cure has gotten worse since 2010, despite his best efforts.
Usually, when a medicine doesn't seem to be working, you get a debate between those who say it's the wrong medicine - and others who say it's just not been applied forcefully enough.
What's funny about the current situation - and doubtless galling to Ed Balls and other critics of Mr Osborne - is that we are not really having that debate today. Even though these borrowing estimates are themselves dependent on an OBR assessment of the economy which many economists do not share.
On his own chosen measure, we will probably find out today that the chancellor has literally nothing to show for nearly three years of austerity. The majority of institutions and individuals who supported Mr Osborne in 2010 are likely to say two things in response: he's got the right medicine, and the last thing he should do is apply it more forcefully.