by Dan Cooke
A charlatan chancellor is as predestined to opprobrium as a philandering preacher.
This government has found a vivid and compelling rhetoric to justify its choice to slash services and squeeze the middle. When George Osborne urges the need to pay off the “nation’s credit card” it resonates with the common sense verity that all should live within their means. The polls show every week that this homely paradigm is the bedrock of government support and the stumbling block for Labour breakthrough.
Yet Osborne’s silver tongue is forked. His strictures on the evils of debt are an indictment in his own case. His ultimate comeuppance is as certain as for a televangelist preaching chastity while screwing half his flock.
The final audit of coalition Britain has not yet been written, but the first draft is the revised forecasts of the office of budgetary responsibility. These show the truth about the preacher when the camera is off. They tell a story of more public borrowing and more private borrowing, even as public and private investment is squeezed. And they tell a tale of premeditated deception on debt.
First, on the great promise of eliminating the structural deficit in one parliament. The OBR concluded in November last year that the chancellor was on course to achieve this objective. This verdict was based on its calculation of the economy’s “output gap”. As the IFS commented at the time, this conclusion was both questionable and critical. If the gap were deemed smaller – and the “trend rate” of growth commensurately lower – then more of the deficit would be deemed “structural” and less “cyclical”.
Fast forward to last week and Osborne’s second budget. Growth was down for 2010, 2011 and 2012 and forecasted borrowing up by another £43 billion over the parliament, more than the difference between Darling’s planned cuts and Osborne’s. But, critically, the estimated output gap was unchanged. While more of the economy’s spare capacity will be unused for longer, the OBR has concluded that it will not waste away for good. So the government can borrow dramatically more while its progress in deficit reduction is deemed on course.
So there will be more debt but it’s not the “bad” debt Osborne rails against. Borrowing a penny more than planned to pay for public services would apparently be a vice, but borrowing more to pay the bills from hobbled growth is presented as a virtue. Osborne has built this paradox on a fiscal test for a “cyclically adjusted current budget balance” based on whether it is projected that there would be no current borrowing at the end of a rolling five-year horizon assuming on-trend growth, regardless of whether such growth rate is actually reached by such point or at all.
Beyond the rhetoric of sound money, a simple truth about this test is apparent. The IFS warns of a danger that it can be met “through policies that are always promised but never delivered”. Or as the Financial Times puts it more graphically, the OBR is like Osborne’s loan shark, urging him to borrow ever more but not to worry because the due date can be extended again and again. This is the role in which Osborne knowingly cast the OBR from the start with the coup of his rolling fiscal test.
But this is only half the story and half the hypocrisy. When the Tories railed in opposition at an economy built on credit, the most telling figures in their armoury of argument did not relate to public borrowing, but private debt. It could hardly be otherwise when Britain’s public debt to GDP ratio was middling by international standards.
What does the OBR have to say about this? Under Osborne’s stewardship household debt is set to rise as a share of the economy in each and every year of this parliament. Not because of booming spending but because of squeezed living standards. More and more families will be using their overdrafts to pay for essentials; using their credit cards to pay the mortgage; succumbing to doorstep lenders to pay the bills when the monthly salary doesn’t last the whole month.
Osborne’s debt bombshell means that the rhetoric of good housekeeping can only be a guilty catechism for many ordinary householders, condemned to fall short of a prudence they believe in by a chancellor who doesn’t practice what he preaches.
For this government to be defeated, its serial deceit on debt must be exposed. Enough of branding it the friend of the banks in the City; it is also the agent of the loan sharks on the doorstep. And Osborne is not a desiccated calculating machine lacking empathy for those he cuts; he is an intuitive confidence trickster, able to play on the hopes and fears of the public while he picks their pockets.
Osborne and Cameron have grounds to congratulate themselves on the way they have set the economic agenda so far. But popularity, when based on deception, must come before a fall. A charlatan chancellor is as predestined to opprobrium as a philandering preacher. Labour’s urgent task is to bring that day of reckoning forward. Before Osborne bankrupts Britain in the name of austerity.
Dan Cooke is a Labour lawyer and activist.