What the Office for Budget Responsibility didn’t say
The idea somehow* seems to have a got about that the Office for Budget Responsibility last week instructed the Governemnt to find another £17bn in cuts and tax rises by 2017. Jackie Ashley says it this morning in the Guardian. Damian Reece implied it in the Telegraph last week. And there seems to have been a lot of briefing around too, with hacks apparently told that the OBR’s analysis demonstrates why the Chancellor is right to set about cutting the deficit today with such vigour.
It’s as well to nip this in the bud now.
What the OBR said last week was that the pressures of an ageing society would create a potential long-term economic problem for the UK.
If all other tax and spend policies remain more or less constant we will have a budget gap that will push our debt to GDP ratio to around 90% by 2062.
To get this ratio to 40% – which is where it was before the 2008-09 recession -will require tax rises or spending cuts equivalent to £17bn in today’s money, said the OBR.
But this doesn’t need to be done by 2017. It needs to be done from 2017.
And there’s no reason why this correction needs to be done all at once. We have five decades to sort it out.
As the OBR itself pointed out, we could get away with a correction of just £6.2bn (0.4% of GDP) every decade and still hit the 40% target.
To put this in context, George Osborne is attempting to slash a £130bn deficit over 7 years. The OBR says we have, on top of this, to cut £17bn over 50 years. Are we going to swallow the camel and strain on the gnat?
Furthermore, as the chart above shows, the ageing pressures don’t even begin to show up in deficits until the 2030s.
We should have a serious debate about where those savings should come from. Perhaps higher immigration should be considered, as I suggested last week.
But what the OBR said last week is hardly reason to run around like decapitated poultry.
And there’s certainly nothing in this latest OBR analysis that supports the Chancellor’s argument that the world will end if we deviate from his existing deficit reduction timetable.
*I suspect people might be mixing up this figure with the extra £15bn in cuts and tax rises that the OBR said last autumn that the Government needed to find by 2017 to stay on track to hit its Fiscal Mandate. The OBR said that the structural deficit was bigger than it first thought. George Osborne has signed up to deliver those cuts, but has not yet said where they will come from.Tagged in: cuts, debt, gdp, george osborne, Office for Budget Responsibility
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