Gibberish, distortions and reporting on the Office for Budget Responsibility forecasts
We must slash the state without delay or we’re on the fast-track to national bankruptcy warns the Chancellor’s fiscal watchdog!
That’s been the message that people might have picked up from some of the media write-ups of the Office for Budget Responsibility’s latest 50 year view of the public finances.
Here’s The Times (paywall):
“The ageing population would put unsustainable pressure on public finances unless £19 billion of further spending cuts or tax rises are introduced in the next Parliament.”
Here’s the BBC:
“The OBR said these additional savings would be needed in the year to April 2019, on top of the already-announced £153bn in austerity measures.”
Here’s City AM:
“The daunting figures show the significant fiscal consolidation that future governments will need to consider. If the UK’s national debt is to be eliminated in the same period, the Treasury would have to commit to an extra £29bn of permanent spending cuts or tax increases each year.”
This is all gibberish.
What the OBR projected was that from 2017-18 the state would run a budget surplus (before debt interest payments) for twenty years and the national debt would gradually decline to around 70 per cent of GDP.
The budget surplus is shown here as “primary balance”. The national debt is “PSND” (public sector net debt):
What the OBR said was that future governments would need to implement a fiscal consolidation of 1.9 per cent of GDP (£29bn in today’s money) to eradicate that budget deficit and the national debt by 2062-63. Or, more realistically, to get the national debt down to 40 per cent of GDP by that same date, there would have to be tax rises/spending cuts of 1.2 per cent GDP (£19bn in today’s money).
What the OBR emphatically did not say was that those cuts need to be made any time soon.
Here’s the text from the report:
“As an alternative to the tightening of 1.2 per cent of GDP in 2018-19 necessary to meet the 40 per cent of target, governments could opt for a series of tax increases or spending cuts worth an additional 0.5 per cent of GDP each decade.”
To put this in context, the Coalition is cutting around £120bn over the next five years. The OBR says we need to make a cumulative total of £19bn* £35bn of cuts over five decades.
The assertion from City AM that we need to make these cuts “every year” is just nonsense.
And remember there will not even be any signs of stress in the public finances as result of the population’s ageing for twenty odd years.
Prudent administrations should, of course, be alive to these cost pressures coming down the line later in the century.
But the idea that after we’ve completed George Osborne’s austerity course we then need to endure another instant round of cuts to avoid fiscal disaster has no grounding in anything the OBR said.
Further, what no one mentioned was that the OBR’s £29bn estimate of the level of consolidation needed to balance the government’s books over the next 50 years was down from its estimate of £39bn last year.
A more accurate reflection of what the OBR said this week would have been: “Size of the UK’s long-term fiscal hole falls by £10bn”
This kind of inaccurate scare-mongering about the condition of the public finances occludes the central question: is Osborne overdoing the pace of deficit reduction today.
From some media outlets – which have an anti-public spending/small state ideological agenda – this kind of misleading journalism is, sadly, to be expected.
Others should really do better.
*as externalities correctly points out in the comments below I was talking gibberish myself when I said that the consolidation over five years would be £19bn in today’s money. 0.5% of GDP (£7bn) over 50 years would, of course, create a cumulative £35bn. Doing the consolidation slower would entail a bigger bill (although this doesn’t affect the main point that there is no imperative to do all the spending cuts/tax rises in 2018-19). Externalities is also right that I should have made it clear that the £29bn figure includes the cost of clearing the entire national debt - as well as the deficit – by 2062-63. I’ve changed the wording above to reflect this.Tagged in: deficit, national debt, Office for Budget Responsibility
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