Scrutiny of the Chancellor's Autumn Statement has begun and the opening shots of the General Election campaign have been fired.
George Osborne stood in Parliament yesterday and confirmed that he had failed to deliver on any of the promises that were made in his first Autumn Statement of 2010.
Bringing down the structural deficit?
The deficit, he proclaimed back in 2010, would be eliminated by the end of the Parliament in 2015. In fact he is on course to have borrowed an additional £220 Billion between 2010 and 2015 and the deficit still remains at £100 Billion a year.
The overall national debt has more than doubled to a frightening £1.4 Trillion. This is a staggering failure and an equally staggering debt legacy that will certainly have to be confronted and dealt with in the next Parliament.
Confusion reigned over the actual deficit reduction yesterday. At PMQs, the Prime Minister said the deficit had been reduced by a third from the figure inherited from Labour, the Chancellor half an hour later said the deficit had been reduced by a half. Whatever the figure, a third or a half, it makes no difference, the nation's debt problems are as acute and worrying today as they were back in 2010.
Success albeit on paper
So with that news out of the way, the Chancellor began to quote economic indicators that on paper look encouraging and sound like success. Unemployment at 6% and falling, economic growth ranging between 2% and 3% for the next five years, record numbers of new jobs created.
Well it all sounds very positive and in some respects it is. But these headline figures conceal a very fragile economic recovery when you drill down into the raw statistics of each sector of our economy. The outlook is even more fragile when you consider the weakness of the overall global economic picture in an increasingly uncertain and unstable world.
Landing some policy punches
So George needed to back up his line that the economy was strong, the long term economic plan was working and that the fruits of austerity can and will deliver prosperity and public spending.
He landed a couple of solid punches with the modest reform of one of the worst taxes known to man, stamp duty. He followed up with a raid on fines levied from the big bad bankers and announced for the third time investment in GP services across the UK. He also responded to the corporate tax dodgers that if they shift their profits overseas, 25% would be collected before it leaves the country.
Perhaps the most worrying part of the Chancellor's remarks were the huge commitments to public spending. £2 Billion for the NHS annually, Billions promised for new roads and flood defences. Then there was David Cameron's £7 Billion tax cuts promise announced just a few weeks ago.
I say this is worrying because the tax cuts and the public spending commitments are completely unfunded and hitherto, no one has explained how they will be funded.
The Chancellor says it is all possible because we have a strong and growing economy. But in the next breath when challenged whether the country can afford a modest 1% pay rise for NHS key workers he states £500 million p.a. is not affordable as we have to keep the deficit under control. Mixed messages indeed.
No one has a credible plan for reducing the deficit
It is clear that neither the Conservatives nor Labour have a credible long-term economic plan for meaningful deficit reduction.
George Osborne is likely to re-visit the same old wells like the Home Office, Defence, Welfare and Local Government. He will probably drain those wells completely dry to the point that they cannot function properly in years to come. Labour would probably run for cover, re-visit their mantra of ‘too fast and too deep’ and look to stage deficit reduction over the next two or three Parliaments therefore increasing the debt legacy for another twenty years.
If our politicians are serious about deficit reduction, increasing public spending in the key areas and committing to credible tax cuts, then there is an alternative to attacking services and threatening jobs (which actually stagnates growth through fear).
Whether you’re politically in favour of our exit or not, leaving the European Union would reduce our fees from the current £10.5 Billion to £500 Million a year as a trading partner. This would save £10 Billion a year and £50 Billion over the next five years.
We could also get a lot tougher and targeted with the overseas aid budget. Reducing it from £12 Billion a year, to £2 Billion a year would save a further £50 Billion over the next five years. In addition, raising VAT from its current 20% level to £25% would bring in a further £100 Billion over the next five years.
What is clear is that the Office of Budget Responsibility and the vast majority of economists do not believe that what George Osborne announced yesterday is either credible or deliverable.