Thursday, 24 April 2014

A long term economic plan subject to short-term revision


Andrew Fisher

There's few soundbites in modern politics as clunky as the coalition government's oft-repeated "long term economic plan". This hit the news and Twitter (with its tweet-limiting hashtag #longtermeconomicplan) as the media dutifully parroted the government's propaganda on the "long term economic plan".

The BBC proclaimed UK government hits borrowing target, reporting: 
"The UK government borrowed £107.7bn in the financial year to April 2014, lower than the £115.1bn amount it borrowed the previous year. In the Budget, the Office for Budget Responsibility (OBR) had estimated a deficit for the full year of £107.8bn.
"The government wants to eliminate the budget deficit by 2017-18."
The same statistics and interpretation were strewn across the media: the government is on course, everything is as the OBR predicted, and then add a quote from George Osborne and the success of his apparent "long term economic plan".

I remember Osborne announcing his long-term economic plan, in the emergency budget of 2010:
"The formal mandate we set is that the structural current deficit should be in balance in the final year of the five-year forecast period, which is 2015-16 in this Budget."
And the accompanying OBR documentation set out that on the road to that balanced budget in 2015-16, the deficit by the end of the 2013-14 would be £60 billion (a £40 billion surplus on the current budget) or 3.5% of our GDP.

So, four years on, how is the "long-term economic plan" doing?

The deficit is not £60 billion, but £107.7 billion - so Osborne has borrowed nearly £50 billion or 80% more than planned. And far from the deficit being 3.5% of our GDP, today it is actually 6.6%.

So why is the media heralding the Chancellor's self-proclaimed success?

Because the "long term economic plan" has been subject to frequent short term downward revision - due to Osborne's stunning ability to stagnate the economy in his first three years - and so, based on rather more short-term predictions, the Chancellor has hit his target.

This is rather like me confidently predicting at kick-off that Spurs will beat Manchester City 4-0 then, in the 70th minute when we're 2-0 down, revising my estimate to a 3-0 defeat and claiming credit for my long term forecasting prowess when that comes true. I suspect my mates down the pub might not be as easily impressed as the BBC, probably because they would remember what I said at kick-off. So why is no one at the BBC able to evaluate a "long term economic plan" in the long term?

The cumulative cost of Osborne's failure against his 2010 plan is being paid for in cuts to people’s public services, attacks on pay and pensions and with fire sales of public assets like Royal Mail.

And of course, he has simply deferred some of the deepest cuts to 2015-16 ... so there is worse to come - especially since Labour pledges to stick to Tory spending plans.

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